Emotional Investing – How Emotions Can Destroy Your Stock Investment

Have you ever experienced getting angry, fearful, sad, hopeless? Or getting too excited? Chances are it is hard to think when your emotions are high.

Hirap mag-isip di ba?

One of the pitfalls of stock investors is emotional trading. It is interesting to see how stock investors go through different emotions as the stock price goes up and down.

14 Emotional Stages of Stock Investors

Let us dig deeper into the several emotions

Emotions of Fear

Fear

When you see your stock portfolio to be covered with red (lugi) and you hear bad news about stock market or about the company you invested, the first normal reaction is fear.

“Nako, baka malugi ako.”

Usually, when this happens, the normal instinct of the investor is to pull the plug… Bentahan na bago maubos ang pera.

What is the worst thing that could happen.

The slight dip in the stock market price was caused by external market factor that was corrected in few days. Then the stock market picks up and the prices start to go up. You miss the earnings since you have pulled out your money from the market.

Hindi ka na nga kumita, lugi ka pa.

 

Emotions of Greed

Greed

Greed can be your worst enemy.

You see your stock investment goes up. You have already earned a good amount of profit. But there is a tingling feeling inside you that says the stock prices will continue to go up and I will earn more.

Aakyat pa yan. Kikita pa ako niyan….

Then the market correction happens! Boom. Stock prices plunges and you see your profits pass by. Worst case, you see your green stock portfolio turns to red.

Kumita ka na sana, nalugi pa. Pera na, naging bato pa.

 

So What Can You Do to Rule Over Your Emotions?

To avoid being over ruled by your emotion and to say good bye to emotional trading, you need to have trading rules from the time of purchase.

The Importance of Trading Rules

You can think on paper before every stock purchase. You can come up with the following numbers before you buy your stocks.

  • What stocks to buy
  • How many shares of stocks
  • What price to buy
  • What price to sell

Write these numbers down. Stick with it whatever is shown on your screen. Whether you see red (losing portfolio) or green (winning portfolio), you need to buy when it is time to buy and sell when the target price is hit.

 

How To Create Trading Plan

You can check out stock broker analysis and go through the charts and come up with the number yourself. You can visit stock forums and learn from the members how they create their trading plans. Just be sure that you are talking to a reliable person who has your best interest in his heart.

Or you can subscribe to Truly Rich Club.

Members of the TRC access a password-protected site where they can see at a glance what stocks to buy, what price to buy and what price to sell. It is updated daily.

For Truly Rich Club Members

For Truly Rich Club Members

 

Bottom Line

You need to have an investment or trading plan when investing in the Philippine stock market. Otherwise, you are prone to do emotional investing. This is a sure recipe for a financial disaster.

Image Credit: Toohightoolo.

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Gina, the maid of Bo Sanchez, who build her stock portfolio using her small monthly salary, has accumulated around 800K in her stock portfolio.

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Top 5 Reasons Why People Lose Money in Stock Market

If earning from the stock market is easy, we would see so many stock millionaires around us. But according to statistics, 85% of stock investors lose money in the stock market.

85%

There are many reasons or explanations why people lose money in stocks.

Here are the top 5 reasons why people lose money in Stock Market:

Read and understand so that you don’t commit the same mistake.

1) Lack of Diversification – This is one of the most common mistakes that stock investors do. They invest only in one or two companies. When the industry is hit by economic downturn, investor loses his investment. Remember this, “Never put all your eggs in one basket.”

 

lack of diversification - all eggs in one basket

 

2) Following Unsolicited Advice – Another reason why people lose money in stocks is because they follow hot tips and other unsolicited advice they hear from the radio,  facebook, forums or from friend. You see opinion is like armpit. Everyone has it and most of it stinks. (Not original, I read it from one of the forums)….

Kung sa atin pa, kwentong barbero. Huwag maniwala sa kwentong barbero sa pag invest sa stocks.

 

unsolicited advice

Kwentong Barbero

3) Trading without a Plan  – Nothing is more dangerous that going to the stock market and investing without a plan. So what do you need to plan? You need to have an idea of  the following before you invest:

What is your stock plan

  • What stocks to buy
  • At what price to buy
  • At what price to sell

Otherwise, if you just buy stocks and hope for the stocks to go up, you are treating it like a casino. And like in the case of any casino, the casino always wins.

Note: I use this tool to help me come up with the numbers. It always come to the rescue.

4) No Idea on What Stock to Buy  – Let us admit it. Going through the balance sheet and financial statement of every publicly traded companies in the Philippine stock market is not easy. In fact, doing that is not even a guarantee that you pick a good company. Company stock news can sometimes be confusing and following all of them is not an easy thing to do.

 

No Idea What Stocks to Buy

5) Too much transaction – One of the disadvantages of many stock transactions (buying and selling stocks so many times) is that you pay transaction fee every time you sell and buy. The transaction fees can be minimal but they usually add up.This is one of the mistakes I was guilty of doing when I was starting.

So how do you avoid transaction fees?  Invest long term, don’t trade.

So what can you do to start earning from the stock market?