Last week we looked at the moody stock market, how stock prices go up and down constantly.
We left you at the edge of the cliff, watching your stock as it goes down in price.
What to do? Do you sell your stock now and lose money but maybe have a smaller loss? Do you hold onto the stock and wait for the price to go up? Will it go up?
An important thing to remember: Unless you sell your stock, you have not gained all the money your piece of the company is worth or lost any money if the price went down. As long as the company is still in business, you still have the stock. You’re still on the ride, and you won’t know if you have lost or made money until you get off. You can end the ride anytime. Where you get off decides the selling price.
I feel like just saying this over and over because I am not actually talking to your brain, which is reading this right now. I am talking to your feelings – 2 of them in particular.
I was going to wait on introducing them but, as usual, they will show up where they were not invited and start making trouble (they make the most trouble when no one knows they’re there) so we might as well get to it:
Meet Greed and Fear:
Greed is ready for action! This tricky urge will have you leaving the money you already have unprotected as you run for the next big win. When taken by this troublemaker, you feel good and confident. You are winning! Until you realize you are not.
Fear is usually not ready for action. In general, Fear is concerned with not losing what you already have. It could be raining money and Fear would hmmmm and ohhhh, wondering if it would make sense to put that bucket out into the downpour. What if the bucket tipped and some of your hard-earned cash came spilling out? Noooooo! Best to stand here, not sure what to do.
Or there is procrastination.
When you keep making excuses for why you have not bought or sold or whatever it is you had planned to do. This can be Fear making choices for you. An easy excuse: Maybe you just don’t have enough information yet!
Really? That could be true, or that could be Fear, paralyzing you again.
Another of my favorites: “I just won’t think about this right now.” Yep, you guessed it – Fear just showed up again.
Sometimes Fear is just as active as Greed. Unfortunately, this can be even worse. By tempting you to sell stock at the slightest downturn, Fear can turn a good investment into a bad one. Fear is ready to pull you off the ride when you are most likely to lose money.
If you end the ride when you are below your purchase price (in the pink), you lost money. If you get off above the purchase price (in the green), you made money.
Fear and Greed can seem like opposites, but they often merge. If you let them take the driver’s seat, they will have you making bad choices.
Come back next week for part 2 on Feelings and Finances.
Jill Schlesinger outlines greed and fear as the sources of many bad financial decisions. This book gives a lot of real world examples that are both informative and memorable.
Warren Buffet’s Ground Rules has been featured in several of my recent posts. This book gives a big picture view of what investing is and how to approach it. It’s surprisingly readable and full of financial wisdom.