Here’s a fact: 90% of investors lose money even though they know how to invest.
These investors possess the right investing knowledge and investing skill but they still do not profit from the stock.
Are you one of them?
How does this happen?
It does not matter if you have many years of investing experience.
If you lack the emotional stability, chances of losing money is greater.
I am going to share with you 5 negative emotions that you must avoid at all costs if you want to invest profitably.
1) Making A Profit But Wanting To Hold For More – Greed
If you are already an investor, you will probably experience this. Greed exists in all humans and we cannot run away from greed sometimes.
Who does not want more money?
Which investor does not want to make more money from the stock market?
An investor will get greedier as he starts to make more money each time the share price goes up. When the share price goes up, he will raise his exit price in hopes of profiting more.
By doing this, an investor risks losing his profit or reducing it when the share prices suddenly plunge due to unexpected events.
This is a very common mistake by many investors. Being aware of this weakness can save you from unexpected volatility in the stock market. As long as you set a determined exit price, stick to it and do not let greed control you.
2) Selling The Stock The Moment Price Drops – Fear
The recent events such as the China Market crash, rising interest rates, oil price crisis and political instability has greatly affected the stock market. There are huge sell downs that caused share prices to plunge.
If you are an investor, are you fearful when you see the share prices keep falling and your profits keep diminishing?
Even worse, you see your portfolio turn red.
Most investors sell their stocks out of fear, momentarily forgetting the initial reason they invested in the stock.
Because of this fear, they end up losing money.
If you have done your due diligence on a particular stock, there is no need to fear when the share price drops.
As Warren Buffett says, “ Be greedy when everyone is fearful and be fearful when everyone is greedy.”
The way to overcome fear is not to put too much emphasis on short-term market movements or investment gurus’ forecasts as this might cause you to develop an irrational sense of fear. Stick to your investment strategy if you have one. If you do not have, design one that works for you.
3) Keep Doubting If You Have Made The Right Investment Decision – Anxiety
Anxiety occurs especially to people who invest for the first time. Very often, they become anxious before executing the buy button or immediately after the hit the buy button.
How do you know if you have developed anxiety in investing? Your heart will pound faster before you hit the buy button. After you hit the buy button, you will constantly check the stock prices if the price goes up or down.
Anxiety arises out of uncertainty. If you know what and why you are investing in that stock, anxiety will not set in. After analyzing if you still feel anxious, chances are you are not certain to begin with.
How to cope with this?
You can conduct an acid test on yourself before buying the stock. Ask yourself this “If I buy the stock and the share price drops by 40 – 50% the next day, will I be able to eat, drink and sleep well?
If your answer is NO, please do not buy the stock.
4) Refusing To Admit A Mistake When It Is Made – Egoism
Egoism has no place in investing. If you are an investor with an ego, there is a risk that it might hinder your investing judgment.
People make mistakes in investing. Even Warren Buffett makes mistakes on his investments.
One of the greatest ways to learn… is to learn from past mistakes. Having profited from one or two stocks does not necessarily mean you will get it right for all your investments.
If you know that you invested in a poor stock, admit the mistake and sell it off.
Most investors will blame everyone or everything except himself or herself. Holding on to a bad stock may turn out to be the worst decision.
You may lose even more money. Simply cut your losses by selling off and moving on.
If you are holding on to a losing stock, ask yourself if it is your ego that is preventing you to sell, or there is a valid reason for holding?
Being aware of your ego can prevent you from losing more money.
5) Checking The Market Movement Just For Excitement – Boredom
With technological advancements, we can access the stock market at our fingertips.
Looking at the movement of the share prices provides some entertainment if you are bored.
However, I would propose that investing is meant to be boring, not exciting.
Some investors may decide to buy or sell shares out of boredom. Very often, they ended up losing money.
When you buy or sell stock to kill boredom, you are doing so based on irrational decisions.
If you feel bored, please stay away from the stock market and catch a movie or read an investment book instead.