How to overcome fear and greed in investing

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There are two things that are deadly like a virus in the investor’s world – greed and fear! If you are to be a successful investor you need to invent a strategy that can help you to overcome fear and greed in investing.

Greed is a selfish excessive desire to gain more of something. Desiring to have money is good but doing it excessively is detrimental to your success. You need to know the limits. The problem with greed is that you will likely to lose more than what you should have. Remember that anything in excess is bad.

Fear is an uncomfortable, excessive emotion that is felt when a person anticipates or is aware of danger. When people are scared of something, they make horrible decisions. They always regret this later when they end up in a worse situation. In a crisis, fear is the greatest enemy and you need to know how to handle yourself.

The best way to overcome fear and greed in investing is to stop treating investments as gambling.

Greed in investing

Greed in investing is the desire to get more and get rich quickly without having to invest more. The reason why most investors are caught in ponzi schemes is that they do not want to risk their money by investing more to gain more but they want to gain more by investing less.

The more you give, the more you receive – anything that oppose this is greed. Why do you want to be a millionaire after investing only R 1 000? If you want to be a millionaire, then you have to invest more money. The higher the vision, the higher the effort you need to make.

Fear in investing

Fear is more dominant among investors who are risk averse. As long as their portfolio of assets is doing well, they love investing but as soon as they start losing money they start panicking.

The main reason why investors panic when their stock prices are falling (bearish market) is that they violate one of the golden rules of investing – invest what you are willing to lose. If you lose what you are willing to risk, the pain is far much lesser than losing all your lifetime savings.

An investor who is looking to get more value from an investment will celebrate a short term drop in prices (short-term volatility). This is the best time to buy more shares when they are cheaper.

Tips on how to overcome fear and greed in investing

The good thing about investing is that, the patient, risk takers and consistent investors will gain more while the greedy or fearful ones will lose more. This justifies why the wealth people tend to get more wealthier while those with nothing will lose the little they think they have. The following are some of the tips that can help:

1. You need to be more patient with yourself when your portfolio is losing money.
2. To gain more, make it a habit to invest more. Remember the more you invest, the higher the expected returns.
3. Choose the investments you understand or believe in. This will help you to understand whether your investments are being undervalued or not. If you do not know, research more.
4. Invest the money that you are willing to lose and save the money that you cannot afford to lose.
5. When the shares in your portfolio are appreciating in value, do not sell the whole portfolio. Sell only a fraction so that you will not get hurt when their share prices keep on increasing. Eventually when the prices of those shares fell, use the cash from your previous sale to buy more cheaper shares. Either way, you are protecting yourself from both excessive losses and excessive gains. This investment strategy is more similar but not exactly the same with value averaging.
6. Do not listen to all the news. Some news are only speculative in nature and if you follow such news, you are likely to make a decision based on fear or greed.
7. Have a long term perspective about your investments. This is very important if you are a value investor because this will shield you from short term effects of volatility.

In conclusion, it is crucial to know how to overcome fear and greed in investing. These two emotions of greed and fear have damaging effects to any investor. It is important to completely avoid the trap of trying to gain more than what you give. Focus on investing and let the rewards do their job.