Investing with Emotions

Investing is a very scary topic these days. The whole world is facing the music and many are not sure about the future of the money. All that one feels is things will be back to normal and everyone reaps benefit out of it. No matter what the world economy is, there are always fundamentals in investing. No matter what happens to the world, the fundamentals don’t change. They remain the same way for a long time.

None of us are perfect as investors. Even the world’s most respected investors have confessed to making errors. I would like to quote Warren Buffet as an example. It is not because I am an ardent devotee of him but he is regarded as one of the best investors of the modern world. In various annual letters, Warren Buffett has told his shareholders: “You’d have been better off if I had gone to the movies [this year]” and “I have erred [by] not making repurchases [of shares].” In 2004, when asked at the Berkshire Hathaway annual meeting what his worst investing mistake was, he explained: “I set out to buy 100 million shares of Wal-Mart (NYSE: WMT) at a [pre-split price of] $23. … We bought a little and it moved up a little and I thought maybe it will come back a bit. That thumbsucking has cost us in the current area of $10 billion.”

Investors make mistakes and one of the best mistakes that I think most make is “Investing with Emotions” rather than “Investing with brains”. Generally it is the fear and greed which drives the investors crazy and make them do something which is not correct. When the emotions start ruling the brains stop working and one can’t make any clear judgment on any issue. If that is the case then how can a person be correct while he does his investments when emotions rule him? Certainly the chances of the investor losing his asset are high.

One other important thing is that the stock will not come up or go down according to wishes of a person. Don’t keep hanging on to a losing stock. If you are losing considerable amount then just sell it and try to buy some other stock which is going up. The chances of you making up the loses are high in the case of buying new stock rather than keeping the old stock and praying god that it should come up. Before you sell the stocks just double check your stats and then if you feel that it is not worth the pain that you take then better sell the stocks and buy other stocks which are more beneficial to you.

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