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The Role Played By Our Emotions While Investing

Aug 17, 2007
Man is a rational being. He has the most developed brain among all species. However, in spite of all this, man is foremost governed by his emotions. It is said, man is ruled by the heart more than his mind. And these emotions, more often than not, play a huge role in the investments of man too. This is the sole reason, say, why the same person at one time might want to invest in the stock market, while at another time might find the same too much of a risk.

Emotions often also control the company one is investing in. Generally brand loyalties come into the picture here too. Example, if someone prefers purchasing his sportswear from Nike, he may want to invest in its stocks too, although Reebok may be doing far better. It is always better to conduct a proper research and check the latest trends rather than blindly following your heart. Keep in mind that you are currently dealing with the stock market and not the super market.

Next important thing is the stock price. We all know that a Ferrari is far better than say a Civic. However even the Ferrari has a price range. Just because it is loaded with more features and is fancier than the Civic, you should not pay an exorbitant amount, far greater than that in its price tag. A similar logic should be applied while investing in stocks. Even if you are going for your favorite brand, remember that you are investing so that you can earn a profit and not because you prefer the stuff they manufacture.

You need to realize that no matter how hard we try we cannot completely eliminate our emotions from playing a role while investing. But what we can do is apply equal amounts of common sense and logic. Always be aware that it is your finances that are going to be affected in this venture. Calculate the fair value of a common stock that you are investing in. The fair value of an investment is based upon the profit generated by it. If, for a considerable period, organization A does far better than organization B, A will surely be far more valued than B. While investing, avoid the herd mentality, stay calm and always go in for the firm with the better fair value. This will ensure that you are a happy investor, earning high profits on your investments.
About the Author
Jay Moncliff has started http://investorbanks.investinghere.info ; a website specialized on money investing , resources and articles. More info on money investing, real estate investing guide at: real estate investing guide .
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