Long term investing is one of the words we used to hear in forums and seminars especially from fellow beginners. Most of us made a promise that we’re going to invest for the long period of time, no matter what happen. But most of the time, we fail.
Let’s see a story of an emotional investor and learn from it. Here we go.
When we start investing, we are excited about the journey. Most importantly, we are excited about the “gains” or the money we’re going to make along the way. Your friends are making money so thought you’re gonna make money too.
A good example is the stock market. So you immediately jump on that kind of “investment” and put your hard-earned money too. You promised to do long term investing and life moves on.
Suddenly, stock market crashed. The stocks you hold went all time low and your portfolio are as bloody as World War II. Damn! You’ve loss more than 50% of your capital now. You became anxious. You can’t sleep. You’re always not in mood. You can’t even do your job well. Your mood and actions are being affected. Imagine you’re just starting out and you already loss 50% of your capital. That’s the beginner’s feeling when stock market is down.
So you changed your mind. The long term investor became a trader now.
You “think” that you’re going to lose more money if stock market continue to fall. When you check your facebook friend’s status, they’re selling their stocks too. So you made the decision to sell at loss. Of course you lose. And now you have broken your promise of long term investing.
You thought it’s ok. You’re thinking you’ll lose more money if you didn’t sell. Maybe yes. But maybe not. Maybe if you plan ahead and set your investing goals before you start, you’ll come up with more intelligent decisions. And since you got a plan, you already foresee both sides of the scenario.
After a year or two, stock market going up again. Your “previous stocks” are performing well. Sigh.
Two years after, one of your new stocks went all time high. After the all time low, stock market sky rocketed to all time high. Stock market is a cycle, you should know that! So you’re seeing the gains and the money you’re making. You can’t sleep again. You’re anxious. It’s almost the same feeling when you lose your 50% before but maybe in a positive way. You’re excited!
So the fear of losing your “gains” made you sell. You think you made the right decision.
Not really, that stock you sell went 3x high after the day you sell. And continue performing better. You thought to yourself, “I wish I didn’t sell too early“. Tsk. Sigh.
And the cycle repeats itself. After another couple of years, you realized you’re not making your money grow. Instead, you’re losing large portion of it. You just decided to leave the stock market and move on.
2. Make/Set investing goals before start investing. Your decisions along the way should be base on your investment goals. Set smart goals.
3. Never follow hype/bash of anyone you didn’t know. Again, your decision should be base on your investment goals.
4. Learn to manage your emotions. Most of the time, we made mistakes when we follow emotions in terms of money. As mentioned, you should’ve a sound plan on different scenarios before start investing. Self-discipline is one of the key in successful investing.
Can you relate? Please share your thoughts.
I hope this has been informative. To our success, cheers!