Warren Buffett famously said, “Be greedy when the market is fearful, be fearful when the market is greedy.” Knowing fear and greed in investing is therefore a good thing.
Our ancestors in the past, thanks to fear, knew how to run away from predators so as not to be killed. And also because of greedier than other animals, people know how to cultivate, store food, and then build a prosperous society like today.
However, it is no coincidence that the EQ index argues that the more able a person is to control his emotions, the more likely he is to succeed in life. The same is true in stock investing. Even the skill of mastering emotions is also put on the top by experts, which is a decisive factor in winning - losing, gaining - losing.
So what should we do to control emotions in investing, so that the actions of "fear" and "greed" appear at the right time and in the right place?
How do emotions affect investment decisions?
Let's analyze the characteristics of an investor's work. Every day, when the stock market opens, we begin to sit in front of a price list, with the numbers flashing green and red and changing every second, every minute.
Looking at the boring price list, we turn our eyes to other investors, groups - group chats on social networks, to see what people are buying, selling, what is the target price, holding this code or that code for a while. How long,... Then when the price list was off, even the night had fallen, we were still thinking, lost in the discussion and analysis.
And emotional trading also emerges from here. For example, if we are happy, we are blind to the risks. If we are afraid, we miss good opportunities. If we're angry, we're willing to take great risks to try to undo the consequences (revenge trading).
Living in that variable environment, if we do not have enough bravery and knowledge, it is easy to buy and sell irrationally and lack discipline. And so the account also "exploded" itself.
If we do not have enough bravery and knowledge, it is easy to trade irrationally and lack discipline.
How to control emotions in investing?
Shaping an investment method for yourself
When investing in stocks, in many cases, you have to make decisions continuously, and you have to decide quickly. But to make quick and accurate decisions, it is necessary to analyze and process information, set investment goals, plan allocations, etc. There is a lot of work to do, to make a decision. good.
To make things simpler, you need to have an investment system, or investment method. This helps you to perform actions according to a pre-programmed logic sequence. It will be the directional compass, so that every time you need to make a decision, you just need to check the conditions of the system and follow it.
For example, you can stick to a periodic investment plan (SIP - Systematic investment plan). By continuously investing small amounts, you take advantage of long-term cost averaging (DCA). Thanks to the habit of investing periodically over a long period of time in familiar assets, you will be more prudent in risky speculative decisions.
Have yourself an investment system that helps you perform actions according to a pre-programmed logic sequence
Building investment knowledge
After reading the above idea, many of you will probably think: "I don't know anything about investing, how can I build my own investment method?" That leads to the second element that you need to focus on developing, which is building investment knowledge.
Referring to investment knowledge, you will probably think of PE, EPS, valuation methods, ... (if according to fundamental analysis), or MA, RSI, technical indicators, wave counting ,... (if according to technical analysis).
This is not wrong, but if you don't look at the investment method, the above knowledge can become a fragment of knowledge. Such knowledge must be systematized from the perspective of a specific investment method and way of thinking. You can find these knowledge in the section
To make things easier, you can look to investment advisors, brokers, even fund managers who you know for sure have their own investment systems.
However, when receiving investment advice, no matter what method it is, be sure to learn from an expert the important components of an investment method:
Clear, objective (non-emotional) logic to make buying/selling decisions.
Investment history follows the above logic, applied in Vietnam market.
Principles of portfolio allocation, appropriate investment size.
Risk management principles should clearly state what we will do when a risk occurs.
In addition, investment knowledge is not only professional knowledge but also general understanding. For example, you should know in advance that no method is all-encompassing; a potentially high-return opportunity also carries a high degree of risk; It's not like businesses and the whole economy can grow by tens of percent per year, but you just invested in stocks and want to earn 5 times 10 times,...
Don't stand on this mountain looking at that mountain
16 years of experience in the stock market gives me the opportunity to meet a lot of people. Many of my clients confided to me: “I just need to make a steady profit of a few dozen percent per year.”
However, they weren't happy when they only held a 35% increase, while a certain X doubled. But there are also lucky people, who bought the correct X code and doubled it, but still regretted: "If I know that, I will buy more".
In this case, instead of comparing the actual profit with the original target, they compare it with someone else's profit, or the profit it could have been. No matter how much they say, they will have a reason to regret anyway.
The solution to not falling into this situation is to return to your own investment goals and methods. If this still isn't strong enough, try linking that goal to the important things in your life.
In software development, there is a concept called user story, written in the format: “Is…, I want… to……”. I love this style of writing because it focuses on the subject and the goal.
Applying investment, for example, we can write the following: “As a father, I want to invest to have money for my daughter to study abroad at the age of 18.” I believe if you always remember this , you will be less emotional, less reckless and stick to your investment plan more, because you know this determines your daughter's future.As a father, you cannot bring your child's future to life. can bet.
As another example, we could write: “As the breadwinner of the family, I want to invest to have a sustainable passive income source, so that my family doesn't have to worry about finances when I get old.” If you develop If you can express this, you must have remembered your responsibilities, your goal of financial peace of mind.Emotional decisions make you insecure, so there is no chance to dominate.
Enjoy the emotions of investing in a controlled manner.
Conclude
Having emotions is a natural mechanism of all living things, including humans. Therefore, if emotions become too dominant, we should not reject them to the extreme, but should only moderate and control them to an appropriate intensity to facilitate work.
Experiencing the emotions of investing is like climbing to the top of Fansipan. Climbing to the top may not be fun, if we don't experience the cold, the slippery pain when climbing the slope, the times we have to struggle with the mud, we have to swing into each bamboo grove to go.
Investment is similar. Accept and enjoy emotions, but don't let them hinder us from reaching our destination, let them overwhelm our goals, and erase our motivation.
Our ancestors in the past, thanks to fear, knew how to run away from predators so as not to be killed. And also because of greedier than other animals, people know how to cultivate, store food, and then build a prosperous society like today.
However, it is no coincidence that the EQ index argues that the more able a person is to control his emotions, the more likely he is to succeed in life. The same is true in stock investing. Even the skill of mastering emotions is also put on the top by experts, which is a decisive factor in winning - losing, gaining - losing.
So what should we do to control emotions in investing, so that the actions of "fear" and "greed" appear at the right time and in the right place?
How do emotions affect investment decisions?
Let's analyze the characteristics of an investor's work. Every day, when the stock market opens, we begin to sit in front of a price list, with the numbers flashing green and red and changing every second, every minute.
Looking at the boring price list, we turn our eyes to other investors, groups - group chats on social networks, to see what people are buying, selling, what is the target price, holding this code or that code for a while. How long,... Then when the price list was off, even the night had fallen, we were still thinking, lost in the discussion and analysis.
And emotional trading also emerges from here. For example, if we are happy, we are blind to the risks. If we are afraid, we miss good opportunities. If we're angry, we're willing to take great risks to try to undo the consequences (revenge trading).
Living in that variable environment, if we do not have enough bravery and knowledge, it is easy to buy and sell irrationally and lack discipline. And so the account also "exploded" itself.
If we do not have enough bravery and knowledge, it is easy to trade irrationally and lack discipline.
How to control emotions in investing?
Shaping an investment method for yourself
When investing in stocks, in many cases, you have to make decisions continuously, and you have to decide quickly. But to make quick and accurate decisions, it is necessary to analyze and process information, set investment goals, plan allocations, etc. There is a lot of work to do, to make a decision. good.
To make things simpler, you need to have an investment system, or investment method. This helps you to perform actions according to a pre-programmed logic sequence. It will be the directional compass, so that every time you need to make a decision, you just need to check the conditions of the system and follow it.
For example, you can stick to a periodic investment plan (SIP - Systematic investment plan). By continuously investing small amounts, you take advantage of long-term cost averaging (DCA). Thanks to the habit of investing periodically over a long period of time in familiar assets, you will be more prudent in risky speculative decisions.
Have yourself an investment system that helps you perform actions according to a pre-programmed logic sequence
Building investment knowledge
After reading the above idea, many of you will probably think: "I don't know anything about investing, how can I build my own investment method?" That leads to the second element that you need to focus on developing, which is building investment knowledge.
Referring to investment knowledge, you will probably think of PE, EPS, valuation methods, ... (if according to fundamental analysis), or MA, RSI, technical indicators, wave counting ,... (if according to technical analysis).
This is not wrong, but if you don't look at the investment method, the above knowledge can become a fragment of knowledge. Such knowledge must be systematized from the perspective of a specific investment method and way of thinking. You can find these knowledge in the section
To make things easier, you can look to investment advisors, brokers, even fund managers who you know for sure have their own investment systems.
However, when receiving investment advice, no matter what method it is, be sure to learn from an expert the important components of an investment method:
Clear, objective (non-emotional) logic to make buying/selling decisions.
Investment history follows the above logic, applied in Vietnam market.
Principles of portfolio allocation, appropriate investment size.
Risk management principles should clearly state what we will do when a risk occurs.
In addition, investment knowledge is not only professional knowledge but also general understanding. For example, you should know in advance that no method is all-encompassing; a potentially high-return opportunity also carries a high degree of risk; It's not like businesses and the whole economy can grow by tens of percent per year, but you just invested in stocks and want to earn 5 times 10 times,...
Don't stand on this mountain looking at that mountain
16 years of experience in the stock market gives me the opportunity to meet a lot of people. Many of my clients confided to me: “I just need to make a steady profit of a few dozen percent per year.”
However, they weren't happy when they only held a 35% increase, while a certain X doubled. But there are also lucky people, who bought the correct X code and doubled it, but still regretted: "If I know that, I will buy more".
In this case, instead of comparing the actual profit with the original target, they compare it with someone else's profit, or the profit it could have been. No matter how much they say, they will have a reason to regret anyway.
The solution to not falling into this situation is to return to your own investment goals and methods. If this still isn't strong enough, try linking that goal to the important things in your life.
In software development, there is a concept called user story, written in the format: “Is…, I want… to……”. I love this style of writing because it focuses on the subject and the goal.
Applying investment, for example, we can write the following: “As a father, I want to invest to have money for my daughter to study abroad at the age of 18.” I believe if you always remember this , you will be less emotional, less reckless and stick to your investment plan more, because you know this determines your daughter's future.As a father, you cannot bring your child's future to life. can bet.
As another example, we could write: “As the breadwinner of the family, I want to invest to have a sustainable passive income source, so that my family doesn't have to worry about finances when I get old.” If you develop If you can express this, you must have remembered your responsibilities, your goal of financial peace of mind.Emotional decisions make you insecure, so there is no chance to dominate.
Enjoy the emotions of investing in a controlled manner.
Conclude
Having emotions is a natural mechanism of all living things, including humans. Therefore, if emotions become too dominant, we should not reject them to the extreme, but should only moderate and control them to an appropriate intensity to facilitate work.
Experiencing the emotions of investing is like climbing to the top of Fansipan. Climbing to the top may not be fun, if we don't experience the cold, the slippery pain when climbing the slope, the times we have to struggle with the mud, we have to swing into each bamboo grove to go.
Investment is similar. Accept and enjoy emotions, but don't let them hinder us from reaching our destination, let them overwhelm our goals, and erase our motivation.