Emotions & Investing

Emotional investing is when the cycle of market conditions influences your investment decisions.

Emotion and investing go hand in hand After all, emotions often motivate us to save. Love for our families, a need for security, and our hopes for the future are all powerful drivers when it comes to investing.

Our emotions make us react in any way to direction of the market or the market cycles. This puts us in a tricky position because sometimes the best thing to do is the opposite of what our instincts are telling us to do.

When the markets are doing great, we feel great and happy, we may be forced to buy or invest more because it feels like the all-time highs in the market will last forever.

But this is the time in our investment cycle that we are most vulnerable, the market at an unknown time will make a normal but an unexpected turn, and when it starts to go down, another phase of emotions checks in. we start to fear and panic, our instincts tell us to sell out entirely to avoid adverse loss. But also, most times the markets lowest moments are the ones that offer the biggest opportunities for investors.

Just like the old saying goes, the night is always darkest before the dawn,

Warren buffet, once said that You buy when there is blood on the streets. He made some of the greatest bets during and after the World War 2, and recently made a fortune during the covid 19 pandemic, but as you go up again the journey is not as easy, as its seen right now in 2024, he is divesting most of the investments he made during the pandemic because he probably anticipates, the bullish market associated with Tech companies could be over. Zoom thought we would stay home but we didn’t so the online meetings are minimized, what next?

Successful investment isn’t about reacting to what happens on the day to day in the market, its about having a plan and setting goals that you are comfortable staying focused and sticking to no matter the ups and downs in the market.

So, acknowledging that our emotions are part of what drives our behaviour and comfort level with investing is valuable.

 It turns out to be a bad idea to try making decisions based solely on logic. Patients with injuries to the parts of the brain that integrate emotion and thinking repeatedly make objectively bad decisions even though their cognitive faculties are intact. 

Researchers have also correlated investments and market performance to everything from the amount of sunshine on a given day to a country’s elimination from the African cup of nations,

To anticipate how emotions might affect your investing behaviour and to prevent emotional investing mistakes, ask yourself questions like these:

Do I hate losing even more than I like winning?