Are you an emotional investor?

We make goals and prepare plans to achieve them and we are very emotional when it comes to meeting them. We face many hurdles, even the best of plans have problems, not because we did not do our best, but because of external factors. But there are many cases of internal factors which we find difficult to acknowledge or accept. One of them is our lack of knowledge with regards to investing. We all believe that with so much information available on the net as well as through personal contacts, we believe that we cannot go wrong and because of this we tend to take wrong decisions. We are emotionally involved. You do not believe it, lets take an example, review your portfolio and check how many stocks you have in it which are loss making, but you are reluctant to sell, all the information in the market says it is not worth the stock, but you are still hanging on to it. The reason is you believe you did the right thing and are still hopeful you will at least get the cost back.

Now look at the portfolio and check the number of cases where you have made money by selling good stocks, you would be telling all your friends and relatives how you made money on these stocks by selling, but really, did you make money or a loss. Because currently the value of those stocks which you sold is much more. So end to end you have lost money, but are not ready to accept. If you were not emotional, then you would just get rid of these loss making stocks and put your money to better use. Most of the emotional investors tend to put in their money in the market just on hearsay. If by now you have realized that you are an emotional investor, go for SIP’s in mutual funds, this way the emotional bias is taken care of, because of discipline.

Another problem with emotional investors, is they are so determined to make money that they are not ready to spend for good advice. Though you could start an SIP, it should be based on one’s risk profile and goal. Again periodic review is important, even the best of plans need to be tweaked as circumstances change with time. Not only own, but also environmental. The biggest problem with emotional investors is greed, they would like to make money fast, so they just concentrate on returns. Returns should also be matched with risks and your time horizon. It should not happen that when you actually require the money, the market is down and you do not actually get what you require for your goal or it would so happen that you withdrew your earnings early, just on seeing some profits.

One thing to remember is any asset class will give you a certain average return. When we say, average, there would be times when the returns are high and other times when they are low. The problem with emotional investors is they tend to go by only the recent news and ignore the average and they end up entering the market when it is high. Remember that investing is not gambling, so not get emotional. If you find it difficult, consult a financial advisor.