5 Profit-Killing Emotions in Stocks
The top 5 most harmful emotions for investors.
In the stock market, emotions kill profits. They also lead to missed opportunities, bad choices, and stunning losses.
Trading like a robot has been proven to result in better stock market returns. Unfortunately for us, we aren't robots, and our feelings often get in the way, whether we realize it or not. Here are the 5 worst profit-killing emotions to avoid.
Buying shares of a stock is simply buying a share of a business.
Companies take months and years to roll out their operational plans, not days or hours. Especially when dealing with high-flying, volatile penny stocks, which often can move significantly within short time periods, it is common to fall into the impatience trap.
This emotion can lead to selling shares far too early, even when they become a massive company just a few months or years down the road. At the same time, impatience is often why an investor will take the first profit they see, cashing in on a 20 percent rise, while the shares are just beginning on their journey to double or triple in price.
You know you have a little greed in you. We all do. This is why once we achieve the gain we wanted in the first place, we start looking for even more. If we get more, then our greed level goes up, and we set our sights on the next higher level.
Greed is not a reflection of what you want - it is a reflection of more. More than what?
More than whatever level you have achieved.
You would be happy with a $1,000 profit until you have a $1,000 profit on paper. That's when greed says, "imagine $2,000!"
Profit potential is limited. Greed is not limited, it is bottomless because it adapts and grows. This harmful emotion typically results in hanging on to a stock far longer than you should and eventually missing the profit-opportunity boat which temporarily sailed past.
You will be able to notice impatience and greed much more easily than frustration. As stock market emotions go, this is the silent killer. It manifests as sudden impulses and trading decisions which won't seem like such a good idea in a few hours when you've calmed down.
Frustration is the space between what is happening, and what you think should be happening. Therefore, it is just another shade of Ego, which will damage your life just as much as your stock market returns.
Whenever you are feeling frustrated, just remember that your desire for something to happen does not make it happen. Nor will it engender wise trading choices.
I always say if you are losing sleep over a stock, then you shouldn't be in that investment. Besides the toll stress will take on your health and attitude, it will also invite the other negative emotions (greed, frustration, impatience, regret).
Think of stress as the mother of all the other emotions. It is the initial cause, and also the final result.
Besides avoiding stressful situations, the way to eliminate stress is to notice it. Observe that you are feeling it, and think about the reasons which are fueling the emotion. Ask yourself if you would make the exact same stock market trade if you were not feeling the stress.
Lastly, play the "what if" game, right to the end. You ask the questions, and then you answer them. It might go something like this:
What if my penny stock keeps dropping?
I'll lose more money.
What if I lose more money?
I'll be proven wrong about my stock choice.
What if I am proven wrong?
I will feel embarrassed.
What if I feel embarrassed? Who will honestly notice besides you?
Typically, in any facet of life (penny stocks, relationships, employment), the "what if" game trickles down to the final realization that your stress doesn't really matter. It doesn't. Stress is created by an individual in their mind and does not exist or live anywhere else.
We all make stock market mistakes. Especially in penny stocks, those errors can be sudden and extreme. Regret is simply a need to hold onto the mistake and drag it through life with you.
You are identifying with the bad investment move, rather than looking for the good which may come from it.
Anyone who knows my story will have heard that I lost all my money within two weeks, when I started trading at 14 years old. It felt pretty bad. Embarrassing. Humiliating. Stressful.
Looking back, that was one of the best things which could have happened. My entire trading style and the company I built were born out of the ashes.
Like the bestselling E-Myth author, and my personal mentor, Michael Gerber frequently says, "Turn your biggest obstacle into your biggest opportunity." This can be applied in all walks of life, from stock market investing, to entrepreneurship, to relationships, to careers.
The only thing which could stop you from this sage advice would be regret. So she dumped you, so you lost money, so you missed an opportunity, so you missed the game-winning catch. What about what you are going to do next? That is all that will matter now.
The best way to protect yourself from these 5 emotions, and the chaos which they will create, is to notice them when you feel them. This instantly eliminates their effects.
Also, develop a plan and trading strategy. Create and refine rules which work for your investments. Trade like a robot.