GREED
GREED
While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.
GREED
TULIP MANIA
The origins of speculation (very different from investing) goes back to hundreds of years. Many would have heard about Tulip mania. If not, then reading up on it is highly recommended. It shows how the market behaves like a herd – when there is a panic, chaos reigns and the speculators all follow each other.
When it is feeding time, they go into a frenzy.
However, there is a small proportion of people where this herd mentality does not quite apply. They are the ones who understand that volatility and time are their friends. There will always be fat cats and starving dogs – our goal is to stay in the middle and avoid making decisions just because everyone else around us are doing so.
WALL STREET
A lot of this tutorial will be focused on what not to do, how not to behave and how to develop a temperament that is conducive to investing. Following Wall Street blindly is not only unwise but it is terribly fraught with risk. Wall Street play with others’ money.
We invest our own money.
So, while Wall Street can weather a storm by losing huge chunks of capital, we are not so privileged. We need to have the right attitude and the beliefs that gives us retail investors that thin edge over the professionals.
Remember, despite Mr Gekko's assertion, greed is not good.
Prudence is key.
WARNING
When markets are going up or down, whether it be due to a jobs report or a PMI report or a Fed/BoE statement or inflation or bond yields or energy prices or cost of WTI or a war, famine, earthquake, hurricane or maybe even a swarm of locusts –
keep steady and do not react.
If we sell when the markets are down, we lock in our losses forever. If we go contrarian and buy when the markets are dipping, we may be well rewarded in time. The opposite is true when the markets are going up. Be greedy when others are fearful and be fearful when others are greedy – easy for Mr Buffett to say, extremely difficult to follow this great advice in practice.
BOOM AND BUST
Fear and greed have caused most of the financial calamities and damage the world has seen. In investing, the simple rule is that do not let your decisions be swayed by boom-and-bust cycles.
Never make an investment decision based on what the market did last month, last week, last day or the last hour.
The stock market is a great mechanism that transfers wealth from the impatient to the patient. So, be patient.
Remember to click on the image & read the JarInv Blog on this subject.
SUMMARY
We will provide some insights on the behavioural aspects of investing. These are not easy to follow.
We should try to contain instincts that will suggest taking action.
Sometimes the best action is inaction. We must not confuse activity with progress. Many are unaware of the damage caused by reactive decisions. Stay calm, detached, measured and unemotional.
After all, this should not be seen as a casino.