There is this stock you laid your eyes on since a long time, good! The Market seems poised to make the fresh entry, great! Sharp investors are often able to identify perfect investment opportunities. It is their emotional volatility that often diminishes their returns. Solid research should be the base of any investment decision but the decisions are often derived from an individual’s emotional response.
Investment decisions need an understanding of the situation that the companies are facing. Investors need to predict the future outcome of an event. It is important to assess the future earnings or valuation that stock would derive.
An investor tends to be biased towards a stock which has been an outperformer in the past. He might end up ignoring sell signal on technical charts or fundamental perimeters.
Fear and greed also influence the investor’s thought process. Greed forces him to buy a beaten down stock, in expectation of higher returns. He might ignore weak fundamentals in that process. Greed may also force him to hold onto a stock past its prime. Fear stops him from buying a quality stock in a volatile market. He fears further downslide. Same fear makes him selling a well performing stock way before its time; out of the fear of correction.
Long term investors are also prone to similar mistakes. They remain stuck to stock in hope of recovery and ignore weak fundamentals. Emotions are again at play when investors make decisions based on their gut feelings. By trusting their gut feeling, they attempt to bottoms or tops in the market.
Why investing or trading based on emotions can ruin you?
Stock market has always been hostile to those entering with a mentality to make short term money. Market mechanism often rewards patient investors. Here, money moves from fragile to strong hands over a period of time.
A beginner often sells under panic when volatility increases, resulting in wealth erosion. An informed investor uses this volatility as an opportunity. He buys quality stocks at lower valuations to maximize gains over the period of time
A novice investor is often a victim of faith. He follows irrational tips provided by friends, colleagues or incompetent financial advisers. Failure to build on one’s own knowledge often leads the participants to lose their hard earned money
How to overcome emotions when investing?
As Ace investor Warren Buffet once said: “Never invest in a business you cannot understand.” (Read more on Warren Buffet here). A market participant should always back his decisions with proper research. Understanding of the business that he is investing in is a must. One should also maintain patience to earn healthy returns over a longer period of time
Learning in stock market is a never ending journey. Not everyone is able to devote enough time out due to their professional commitments. As a result, participants often take short cuts. Here, emotions often take over rationale. It may result in mistakes while making investment decisions. The prime reason is the inability of a market enthusiast to generate solid research on his own. Stock Market requires constant efforts to gain knowledge. Instead, human emotions often take over and mistakes are committed. A simple way to counter it would be to seek professional help while investing.
To manage these constraints, StockBasket could be an ideal platform. Products on this platform are backed by thorough research. Various baskets are designed to fulfil different risk appetite. These baskets help to achieve long term goals of the investors.
So, instead of losing sleep over stock market volatility let the experts work for you. While you are busy fulfilling your commitments, let StockBasket take care of the rest. Give it some time to mature. Then see, buying that new car or building that dream house will never look like a distant dream.