How to Most Effectively Use and Control Your Emotions When Stock Market Investing
Posted on 03. Mar, 2010 by Global in Uncategorized
If you’ve ever invested in stocks, then you probably know that the market is highly dependent upon the emotional reactions of its investors. But did you know that emotions are one of the primary reasons why most investors don’t make the kind of money they want? That’s right, by learning how to better control your emotions, you can help to significantly improve the long term success you have in the stock market. Here are 7 tips you can use to help get control of your emotions when you invest.
1) Create an Investment Plan and Document It
Writing down and documenting your investment plan is proven to help keep you focused and on track. In order to accomplish what you want to with your investing, your plan should include investment goals, any specific portfolio objectives and a specific time frame to achieve them. You should revisit your plan regularly to help keep you on track and help prevent short term events from distracting you from your investment goals.
2) Do Contingency Planning
Always think through as many different scenarios as you can when it comes to your investment plan. Imagine all of the possible situations (good and bad) that could happen to your investments and write a plan of how you’ll respond. Think of it as an emergency plan so you’re always prepared no matter what happens. By doing this simple exercise, you can significantly decrease or eliminate the emotional reaction you have to a situation because you’ve had to time to think it through in advance.
3) Focus on Value Investing
If you want to decrease the chance of your emotions running rampant, focus your efforts on value investing. By focusing on value investing, you will avoid being influenced by the news of the next big “winner.”.” Value investing is a great way to help overcome the emotional roller coaster to profitable investing.
4) Set Limits and Stick to Them
Setting limits on your investments can significantly decrease your stress level and eliminate your emotional reaction to market news. By including limits for both selling and buying, you’ll make more informed decisions than other emotionally distraught investors. This requires future planning and discipline to not only create your hold prices but also to act on them when the market changes. This disciplined action of buying and selling based upon pre-set limits will help to limit your potential losses and insulate you from bad emotionally charged decisions.
5) Invest on a Regular Basis
By investing regularly, you can create an investing routine where you make decisions based upon your goals rather than outside influences. This helps to overcome the need that most inexperienced investors have to “follow the masses” and overreact. By using your plan and investing based upon your goals, it will help insulate you from market volatility.
6) Set a Limit on the Number of Transactions
Often, the more stock transactions you make, the more likely you’ll fall victim to your emotions and lose sight of your long term investment goals. The more short term transactions you make, the more random your decisions become and the higher the risk. By limiting your transactions you can decrease your costs and focus your energy on the long term trends.
7) Evaluate and Learn from Your Mistakes
Anytime you make a mistake always take time to figure out what went wrong. Then write down this information and figure out how you can use it to your advantage next time. This one simple technique can make your investing even more profitable because you’ll never repeat the same mistake twice.
With these 7 tips you’ll be able to map out your investment goals and keep your emotions in check so you can make your investment portfolio even more profitable.
And by making more profitable investments you can spend more time and money on things you enjoy like spending time with your family, traveling and doing hobbies like taking pictures and then displaying your memories in beautiful wood picture frames (or even gold leaf picture frames). This way you’ll be reminded of the fun times so you’ll continue to stay motivated to invest.
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