Take Emotions out of Stock Investment Decisions
The feeing that you may sustain losses when stock investing is sometimes even stronger than the feeling of enjoying high rewards.
It has been proven by several researches that people tend to remember better the negative feelings of losing money from investing than the positive ones associated with making profits.
As a result investors that have sustained several losses may experience worsening in their investment judgment. The bad feelings associated with losing money quickly enter investors' minds, which can result in blurred and emotional investment decisions.
So, the key to avoiding such situations includes the establishment of a plan of action before embarking on investing and sticking strictly to it.
Emotions in Investing
Our emotions can lead us to bad decisions regarding investing. Thus, being an emotional investor can play you a bad trick.
However, being an emotional investor is not an indication that you will not be a successful investor. Neither does it mean that you are unable of making viable investment decisions.
It just means that you allow for your emotions to enter decision making, sometimes consciously sometimes without realizing it.
Prepare an Investment Plan
As mentioned above, it is recommended that you make a plan before you embark on investing and stick to it with the required discipline. A sell point should be included as a part of your plan, which represents the point up to which you can keep your stock.
Other considerations you should make include a realistic view on the fluctuations of the stock's price as well as the lowest point, which the stock can reach under different conditions of the market.
As part of your plan you should include an exit strategy that includes a sell point, which if reached will trigger the selling of the stock.
The plan should be so constructed that it excludes the possibility of making too hasty or late selling as well as it eliminates emotions from your decision making.
You should be also aware that selling too soon and selling too late are sometimes difficult to determine. However, different strategies can be implemented to eliminate such occurrences.
All you should keep in mind is that you can only lose 100% of your investment if the price of the stock falls to $0. On the other hand, being hasty to sell may result to the missing of further returns since no one knows how far the price of the stock can get.
Investing Plan and Investing Strategies
Different investing strategies can be included in your plan.
If you are a supporter of the buy and hold investing strategy, then a rising price may result in your premature selling of the stock due to fear of losing your profits by a falling price. However, you are not guaranteed that the price may either continue to rise or reverse its direction.
Different tools have been developed for the purpose of protecting your profits from the strange movements of the market. Some of them are trailing stops and stop loss orders. By using them you will be able to protect yourself from huge losses due to unfavorable attitude on the part of the market.
Unfortunately, these strategies don't provide you with a guarantee that you will generate a profit or sustain an absolute loss. However, they greatly facilitate the elimination of emotions out of the investment decision making process. As a result you will be able to make more reliable decision regarding stock investing.
Finally, no one is free from emotion interference when speaking about money. However, you can greatly minimize their influence on your decision making by making a realistic and viable plan before you start investing in stocks.
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