A few days back, I posted about the 7 Investment Sins and some brief thoughts on the Price versus Value debate.
Over at MusicWhiz's corner, he had also written about the various investment sins too.
Today, I thought I would just write more about one of the problems that most investors (including me) suffer from:
FALLING IN LOVE WITH OUR STOCKS (and sometimes our investments too!)
(Beautiful Image Above by kwerfeldein )
Human beings tend to get emotionally attached to the things that they possess. Certain people have gone on to suggest the reasons why we fall in love and why it even feels so good to be in love.
Apparently, being in love helps to trigger some of the circuits in your brain that gives you pleasure. Dopamine which is the main chemical that is involved produces feelings of euphoria, sleeplessness, and focused attention on the thing that we fall in love with. Also, the feeling of love tends to last for two to three years. INTERESTING FACTS!
Does that explain why most of our stock holdings only last for two to three years? We research them, fall in love with them and them ditch them for something better after a time frame of usually two years!
This is my experience personally. I have been investing for close to 7 years and I can say that I hardly own any of the stocks that I first owned when I started out investing!
There is however one particular stock that remains in my portfolio today. It is Unifood holdings. Back in the good old days of early 2002, people were singing praises about this stock. I did my research and made the mistake of falling in love with it. The price dropped and I was too emotionally attached to let go of it. I had fallen in love with it. 7 years on, the stock price has dropped. I am now stuck with it.
The problem of falling in love with our stocks is that we let the emotional part of us go into overdrive and after spending some cognitive energies rationalising why we should purchase that certain stock, we simply stop our cognitive engines and rev up our emotional engines. We start to grown a certain attachment to the stocks that we have just bought into. Just the way love is blind, we stop seeing the flaws and only start to see all the good points of the business.
And yet most investors know that we should never let our emotions get the better of us. We are supposed to be cold blooded people just trying to squeeze the last penny out of every investment that we make.
And just like any marriage, we only start to see the flaws after it becomes too late. By then, the emotions are gone and we stare in disbelief at the stock sitting in our portfolio which we thought was the best in the world and should have risen up by ten-fold or twenty-fold.
Have you suffered from the same experience?
Or what strategies do you use to remove the emotional part of investing?