I’ll give you some examples, followed by comments. Since this article is about learning, let’s start with this:
“What we learn from history is that people don’t learn from history.” When investors get either too fearful or too greedy, they sometimes hide behind the notion that “This time it’s different.” Usually they regret it.
On fear and greed
“Two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. … We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” This is the simple recipe for being a contrarian investor. Continue reading
It’s often said that financial markets are driven by two competing emotions, greed and fear. There’s a third emotion that requires constant management: boredom.
It’s exciting when assets go up or down by a lot. Generally, they don’t. It’s boring to watch things that don’t do much in a hurry.
And it’s boring to wait for the market to validate your assessment of fundamental value. Continue reading
First off, I have no idea what is the going to happen on Monday when the market opens. The market may open ugly. Some sort of corrective action in the market should not come as a huge shock.
Every valid investment strategy goes through periods of under-performance (relative), or draw-downs (absolute). The question is how you deal with it. One key characteristic of frustrated investors is that they jump from strategy to strategy. The first sign of weakness forces these weak hands to jump ship at just the wrong time. In short, following a strategy is easier said than done.
Ben Carlson at A Wealth of Common Sense also notes how our fear of losses, or loss aversion, affects our ability to invest successfully. He writes:
Crashes, corrections, draw-downs, losses, system resets or whatever you want to call them are a feature of the financial markets, not a sign that they are broken. These things have to happen every once in a while for the system to function Continue reading
“The point is, ladies and gentleman, that greed, for lack of a better word, is good.” – Gordon Gekko
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.” – Warren Buffet
Greed may have been good for Gordon Gekko (at least for a while), but in the investment world it rarely is as Warren Buffett is famous for saying.
Investors are unequivocally greedy today, and with some perspective it is hard to blame them. Continue reading
Whenever a stock is bought it is the temptation and hope but not the fear. Many times the trade is made without much of analysis no matter what the stock did in the past it assumes a new life once an investor owns its, and he looks forward to a rosy future. But these simple expectations become complicated by what actually happens it is greed which raises new doubts, new concerns, and conflicts and we wait for more profits and this waiting turns a profitable trade in to losses. So a psychic dilemma with ego, id, and superego turn the situation in a state of constant battle.
Lesser profits are better than no profits or losses. Control greed and take rational decisions about exiting the stock. The execution is more important than reading or writing. Continue reading