Wrath – never get angry; just fix the problem and move on. Individuals tend to believe that investments that they, or their advisor, make should "always" work out. They don't and they won't. Getting angry about a losing bet only delays taking the appropriate actions to correct it."
Loss aversion" is the type of thinking that can be very dangerous for investors. The best course of action is to quickly identify problems, accept that investing contains a "risk of loss," correct the issue and move on. As the age-old axiom goes:" Cut losers short and let winners run."
Greed – greed causes more investors to lose more money than at the point of a gun. The human emotion of "greed" leads to "confirmation bias" where individuals become blinded to contrary evidence leading them to "overstay their welcome."
Individuals regularly fall prey to the notion that if they "sell" a position to realize a"profit" that they may be "missing out" on further gains. This mentality has a long and depressing history of turning unrealized gains into realized losses as the investment eventually plummets back to earth. It is important to remember that the primary tenant of investing is to "buy low" and "sell high." While this seems completely logical, it is emotionally impossible to achieve. It is "greed" that keeps us from selling high, and "fear" that keeps us from buying low. In the end, we are only left with poor results.
Sloth – don’t be lazy; pay attention to your money because if you don’t – no one else with either.It is quite amazing that for something that is as important to our lives as our"money" is, how little attention we actually pay to it. Not paying attention to your investments, even if you have an advisor, will lead to poor long term results. Portfolios, like a garden, must be tended to on a regular basis, "prune" by rebalancing the allocation, "weed" by selling losing positions, and "harvest" by taking profits from winners. If you do not regularly tend to a portfolio, the bounty produced will "rot on the vine" and eventually the weeds will eventually reclaim the garden as if it never existed.
Pride – when things are going good don’t be prideful – pride leads to the fall. You are NOT smarter than the market, and it will "eat you alive" as soon as you think you are. When it comes to investing, it is important to remember that a "rising tide lifts all boats." The other half of that story is that the opposite in also true. When markets are rising, it seems as if any investment we make works; therefore we start to think that we are "smart investors." However, the reality is that there is a huge difference between being "smart" and just being "along for the ride
It fits property speculators to tee, trust me. The only real difference is they can't easily sell when it all turns against them as it is now. With RE you really have to get in at the bottom, like 30 years ago or more. Then you are all paid up in a time of wage and property inflation and can exit at your leasure.
Come in near the end like 50% of the current crop of speculators and you are trapped owing a fortune in a time of falling wages and house prices that are not even keeping pace with inflation. All you can do is hold tight and pray some miracle occurs to bail you out. I don't see any miracles on the horizon myself, quite the opposite in fact.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
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