Anger becomes a deadly investing sin when it isn’t managed. Anger in itself isn’t a problem; the actions it prompts you to take, though, can cause major losses. To help you prevent these losses, here are two sets of tips. The first relates to monitoring your investing moods; the second involves avoiding specific, anger-induced investing mistakes.
Mood Monitor
If you’re vulnerable to the sin of wrath, you need to be vigilant for signs of anger in all its forms when you’re contemplating your investments. Be alert for the following emotions and take the suggested precautions if you spot them:
1. A red-hot desire for vengeance. You want revenge against the market in general or a broker who you feel gave you bad advice or the media for ruining a great investment. When you’re contemplating a given investment, all you can think about is how the “enemy” will rue the day they crossed you. Your goal is not financial as much as it is that sweet feeling of defeating your adversary. Read the rest of this entry »
Sloth is often a function of time. It may be that you don’t have the hours or don’t want to put in the hours necessary to be a good investor. That’s fine. Though there is a minimum amount of work every investor needs to do, you must find the right investing mode given the hours you are willing to expend. Your sloth may result from being in the wrong mode; you’re trying to do it yourself when you really should be relying on a money manager. The three modes, therefore, are:
- Doing it yourself
- Focusing on mutual funds
- Using a money manager
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Greed is one of the most difficult sins to manage because it is always there. We invest to make money, and every promising investment raises the possibility of making a significant amount of money. We wouldn’t be human if part of us didn’t dream a bit about what might be. Good investors, though, keep that part of themselves in a controlled, isolated environment. If you are particularly vulnerable to the sin of greed, you’ll do likewise. Specifically, you’ll do some or all of the following:
- Invest slowly, knowledgably, and logically. Speed, ignorance, and reflex are the greedy investor’s enemies. Force yourself to move relatively slowly before making an investing decision, even when you’re certain that even a moment’s delay could cost you thousands. In the vast majority of cases, delaying your decision for a short period of time won’t hurt. In most instances, it helps because it gives you a bigger window of time in which you can think, reflect, learn, and talk about an investment. Greed preys on people who just react. When I say invest knowledgably, I mean do your homework. Learn about the fund’s or stock’s performance historically. Compare the fund or stock to the appropriate index or benchmark. Read as many reports as you can related to the investment. Don’t worry that your delay makes you spend an extra 50 cents a share because in the long run it won’t make a difference. Finally, logical investing means reasoning out your investment decision. When you hear a great tip or read something that makes you believe you’ve found a great fund that will make you millions, step back and write down the logical steps that have led you to this conclusion. Specifically:
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For all the seven sins, the goal is to keep your emotions in check when making investment decisions, but it is especially important here. Anger flares up faster than any of the other sins and it can be so powerful that before you know it, you’ve made an ill-advised investment. Besides the previous recommendations, here are some proactive steps that can keep Your anger out of the process:
- FORCE YOURSELF TO TAKE BREAKS FROM THE INVESTMENT WORLD IN GENERAL AND YOUR PORTFOLIO IN PARTICULAR
The more you immerse yourself in an investing mindset, the angrier you’re likely to get, especially if things aren’t going your way. Rubbing your nose in your own mistakes or the market’s unpleasant surprises for hours every day will just raise your hackles. As a long-term investor, you don’t need to be tracking your stocks nonstop or be up on every market development. While I strongly advocate being aware of events that have an impact on your portfolio, you can maintain this awareness by monitoring it every few days or by spending just a little time on it daily. Reducing your exposure to the investing world will reduce your aggravation. You will be less likely to blow your stack or your investment dollars from the accumulated pain associated with nonstop market monitoring. Read the rest of this entry »
