This is also applicable in investing. You can know everything about valuing companies, but it'll come to nothing if you can't apply it rationally when the heat is on.
Human behaviour is directed by a combination of evolutionary hardwiring and development programming, and you can see both in everything we do.
The trouble is that in stock market investing, a very recent phenomenon in human evolution, we haven't developed behaviours appropriate to it.
The usual range of other behaviour responses that we picked up in our early life are often completely inappropriate.
Recognise your emotions
These problems are all tied up with human nature, so it is impossible to eradicate them. But that's the fundamental irony of investing: irrational human behaviour creates the opportunities, but to take advantage of them you have to be rational and inhuman!
Whenever you try to put a curb on a natural process, there's a danger you'll overshoot. If you worry too much about your crowd following tendencies, for example, you could end up going against the consensus opinion just for the sake of it - which might itself be a mistake.
Probably the best way to deal with your emotions is to learn to recognise them, so you get a feeling for when they might be getting the better of you. If you feel yourself getting a bit overexcited, then put it all to one side and go and do something else. In the stock market it's best to favour inaction over action.
Read: Rational Thinking about Irrational Pricing
No comments:
Post a Comment