How Does Controlling “Greed” Lead to Better Investing?

Question

I understand that for investing some greed is good right? I mean otherwise why would we be motivated to invest in the first place? However how about controlling greed?

I think if we cannot learn to control our emotions and greed then we may make bad decisions that lead to losses. What do you think?

in progress 1
Jones 8 months 2 Answers 89 views 0

Answers ( 2 )

  1. Sometimes greed or maybe the fear of missing something might be driving some behavior on it might not be greed for the greed sake and a terrible thing but it may be a like wow everybody’s making a killing in the stock market is really going up and technology is driving everything and I kind of get in on this.

    And you might be yourself.

    Is that the way that the right thing for you at that particular time or the realm of money or investing or is it driven by know maybe some of it may be greed a little bit.

    So I understand that markets go up and down and markets go up and down for a variety of real fundamental and technical reasons.

    Companies have better months than others are better years than others and there’s technical things there there’s business cycles there’s all sorts of stuff there might be demographics behind it.

    The only real health care stocks might be rising because there’s an aging population or there’s some a new drug company announces and that’s driving up the price of the stock because there might be a new wonder drug that’s going to really help the company earn a lot more money and now help you if you’re a stockholder in that company.

    But when markets artificially go up especially as a large big group sometimes it comes from greed and sometimes is it from people piling in money and trying to get in on the train so to speak and sometimes are getting in late.

    You know we see this over and over and you might have heard the term formalwear and are also very modern term actually fear of missing out right.

    Fear of Missing Out in the air going to work and your neighbor or your boss or your coworkers are saying well you I’m going to make an assignment about the stock and it’s up this amount of money in your cash

    I’m missing out on this.

    I got to get in on this and you’re not looking at fundamentals you’re not looking at things or people might be using phrases like well this is the new normal stocks always go up 15 percent every year year after year.

    That was like it was for a period of time in the 80s in particular in 90s it was like that you know with the Internet and you know driving mad.

    And that’s where in the end like in 1996 Alan Greenspan the chairman of the United States Federal Reserve was really in charge of money supply in the United States had a boring speech about a bunch of different things.

    But he had this wonderful phrase in there about irrational exuberance the man matter heard this term and it was basically that people are investing irrationally and they were just so positive and exuberant about stocks and investing.

    You know because it was the Internet age was the dot and the Internet and you just invest in a company like Petz dotcom and they’ll do crazy and you’ll make a ton of money and you don’t have to try hard you have to think.

    And that was the irrational exuberance of didn’t you think there were several.

    It was a rational there’s no rational fodder plan and people were just exuberant for no reason at all.

    And that drove the market for you know quite a bit especially in the Internet.

    People thought oh this is the new normal era is going to be 15 percent or more on stocks while you know turned out three years later actually after Greenspan said this wasn’t right away.

    But you know then you have the big Internet bubble right and stock markets really crash gave up all their gains.

    It was really a really hard time so if you hear these inner bubbles where it grows grows grows and then the bubble pops that’s where everything then goes down real fast because it is based on greed possibly or fear of missing out or irrational exuberance.

    Either way people are getting in.

    You mean that for the most rational reasons.

    We recently had a you know the great recession in 2008 2009 with you know some financial aspects of the derivatives but also the housing bubble.

    You know where things in the United States particular housing bubble were you know drug prices up and then they all kind of came crashing down.

    So I really understand that from your own standpoint as an investor in this way you’re long term investors kind of good to go back and think about fear and greed and thinking my investing might do my changing my plan and my changing my behavior.

    Is it because I’m missing out or maybe a little greed or is it something else.

    So what to do if you have those feelings.

    One is you can pick the right do nothing stay the course in the course of having that systematic regular plan really works.

    Worked for me.

    I hope it can work for you too.

    Once again we’re not timing the mark.

    We’re not buying and selling we’re maybe long term investors.

    Review your goals and plans.

    Is it matching up to where you want to be.

    Maybe you’re getting a top idiot in some areas and that can sometimes happen with where you might be.

    Let’s say even if you’re not greedy or you’re not trying to invest too much but your your portfolio sort of scale back maybe because everybody else is driving up stocks.

    Your portfolio now instead being maybe a balance of 50 percent 50 percent stocks and 50 percent bonds just to keep it simple.

    My now gone to 70 percent stocks and 30 percent bonds and that’s taken more risk than maybe you wanted to at that period in your life.

    Maybe you’re close to retirement for example.

    So it’s very bouncy comes in where you sell those winners you sell those stocks right.

    The whole sell high rate buy low sell high and you’re selling those winners and you’re buying more bonds will sort of bring it back and balance I mean you’re buying those bonds when they’re low.

    Right.

    Buy low sell high real investing 101 to get back to the mix that you’re comfortable member that 50 50 is your risk reward your risk tolerance that you’ve decided not sort of something else it might be always 70 30 but maybe they want a 90 10.

    And they need to bring it back into the balance that’s right for them.

    Either way you’re rebalancing and how you can rebalance.

    You can either just sell your winners right and then buy some of the lower performers and you get back in balance or one way I like to do two to kind of ride those a little bit if it’s something that you feel comfortable writing a little bit and non-crime maybe transaction costs or taxes when you sell things is to redirect my regular investments.

    I’m always regular investing always seeing a percentage of my paycheck and regular investing but maybe a change from buying you know 50 percent stocks and 50 percent bonds.

    I flip it to 70 percent bonds and 30 percent stocks boy and then inch up that bond to get back in balance as this as a pretty example once in Europe percentages will differ or may differ.

    So they understand that the key is again investing is a long term game of buying low and selling high.

    But when you have the greed thing be mindful that you’re not jumping into something because others are particular with some of these very speculative or risky that you’re really following your plan and that you’re staying in balance that when things get artificially blown you know blown up like a bubble.

    So you can you know not be at as much risk that you are taking on of all that money coming out.

    So fear greed really worked together and really understand those because they really drive the markets up or down and really understand two key phrases It’s not about timing the market it’s about time in the market.

    Right.

    So we’re going back to that lesson when that lesson to where yeah we’re regular investing.

    Compounding is working for us maybe we are continue to invest a little bit more.

    We’re understating risk and reward and we understand fear and greed and we’re using that time to build towards our goals and that’s what’s really all about while enjoying life today.

    So these five principles are real real key things around that.

    Now the last lesson here we’ve got a little bit a couple of action steps and we’re wrapping up.

  2. If one is too greedy in their investments then they will soon suffer financial loss because of this emotion. Fear is the ugly twin and they go together back and forth, one moment greedy and then massive fear when it seems like you are going to lose it all.

Leave an answer

Browse
Browse