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As I have written before greed is what makes us invest more in the markets after huge upward moves accompanied by fear that we are going to “miss out”. Fear is what makes us avoid investing near the bottom while greed makes us want to hold on to everything we have. When considering an investment I like to ask myself whether my decision is based on the emotions of fear or greed or based on logic and probability.
Another important step I like to take before I make any investment is to write out the reasons for wanting to make the investment and the performance I can reasonably expect. This analysis includes the date the security or fund name its price expected return and probable time frame. Sometimes this simple step can help avoid investment mistakes. It also serves a purpose when an investment goes down in price and I am wondering what I could have possibly been thinking when I bought it which happens to everyone that invests at some point. Alternatively when greed grabs hold after a nice extended move upward it is helpful to look back and see if the investment has met my expectations in consideration of determining a logical selling point.
Sometimes I like the investment but after writing it out I decide that it is not quite the right time to make the purchase. I will then wait for a more opportune time to make the investment. This is where patience comes in an area every bit as challenging as harnessing fear and greed.
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