Investing/Strategy/Psychology of Investing

Psychology of Investing

Two extreme emotions impact people who invest in the securities markets:

  • Greed: How much money they will make if they are right
  • Fear: How much money they will lose if they are wrong

The first type of person is seeking higher returns so they invest most of their money in the stock market. The second type of person is more concerned about preserving the value of their assets so they invest in short-term bonds, t-bills, and CDs. Most investors fall somewhere between these two extremes.

Market conditions also impact emotion-backed investment decisions. For example, a Bull Market makes people feel confident so they pour money into stocks. A Bear market creates fear that causes people to sell stocks and invest in bonds and money market funds. These two emotions cause people to buy near the top of the market and sell near the bottom of the market. 

Wall Street Says.....

Turn your assets and your investment decision-making over to financial professionals. These advisors use disciplined investment processes that are not impacted by counter-productive emotions.

Paladin Says.....

Top quality financial advisors are more disciplined than the typical investor. However, advisors still respond to the emotions of their clients because they do not want to be terminated. The best advisors use education to convince clients to minimize the impact of emotions when they invest in the securities markets.

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