4 Ways Your Emotions Can Sabotage Your Investments

 

 

As an investor, your emotions can act as your own worst enemy. They can cloud your judgment and get in the way of making important decisions. Investing isn’t easy, and at times it can be stressful, but keeping a level head is vital to making smart and successful investments.

Here are a few ways your emotions can sabotage your success:

1. Panic selling

Too many investors sabotage their investments by panicking when the market drops and selling their stocks. The nature of the stock market is to fluctuate, so if you panic and sell whenever it falls you’ll never wait long enough to make money when it rises.

The media loves to use fear mongering tactics to bring about public anxiety, and it is that emotional reaction that causes volatility in the market. Your confidence in your investments should not falter just because the market does.

2. Following the Herd

​Don’t base your investment decisions off of what everyone else is doing. Buying stocks because other people told you to or selling them because everyone is panicking are both examples of uninformed, bandwagon investment decisions. You shouldn’t follow other people’s investment advice unless they are reliable investment advisors.
In the cautionary tone of parents everywhere, I ask you: “If your friends jumped off of a cliff, would you?” Doing something because everyone else is doing it doesn’t mean it’s a good idea. The same lesson applies to investing.

3. Over-confidence

As an investor, I caution you against the danger of being overly-confident, as it can lead to you making risky decisions. Too often investors get overly-confident in their ability to time the market, but that is something that no one is fully capable of predicting. Keep your confidence grounded in your knowledge of the investment, not your lucky track record.

4. Investing in Companies Because You Like Their Products/Services

Some investors have given out the advice that you should invest in a company ‘you know’ from using their products or services. This is never a justified reason to invest. Just because you use a company’s services doesn’t mean you know anything about their business model, rate of return, or the security of their stock. Basing your investment decisions off of your emotional relationship to a company, simply because you like their products, does not guarantee that you’ll like investing with them. 
 


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