Removing The Emotional Aspect From Investing
Regardless of how skilled an investor you are, financial markets are demanding by any standards. However, in all fairness, investing is a lot less trying than trading, especially when leverage is involved. Let’s be honest, what other industry has guys jumping from skyscrapers when they have a bad day? That’s how bad a bad day can be in financial markets. It’s a tough terrain… and it will try you, continuously. There’s no avoiding it!
I have seen many enter the Crypto market, only to lose their shirt, along with their determination to continue. This is the path of the emotional investor. The concept of loss is too much to process, and so avoidance is chosen as a more “comfortable” alternative. Essentially, investing is the execution of ideas that are based on technicals, fundamentals, and other data. The emotional element doesn’t play a part, or at least, it shouldn’t.
It’s not just that many investors allow their emotions to affect their decisions, they are dominated by their emotions. When your emotions are in the driver’s seat, there is little hope of success. An investor with tremendous knowledge and understanding is essentially powerless without the strength of character needed to execute emotionless decisions. This is the area of expertise that usually trips up even the most knowledgeable investor.
In a bear market, the desire to “get in on the action” after a massive dump is just too powerful for many to avoid. The immediate pump is short-lived, only to be followed by a deeper correction. One need only refer to the bear market of 2022 as a real-life example of what I am trying to convey. Emotional desperation distorts reality, ultimately leading to compounded losses. This is the outcome of an emotional investor… ongoing emotional decisions, void of any technical or fundamental reasoning.
The desire (emotional element) to profit is greater than reality, and so the emotional investor creates his own version of reality. Sadly, reality is destined to destroy his illusion, and will eventually, come knocking. This is why extremely disciplined individuals often make great traders. The ability to override, or ignore the emotional aspect, based on sound data, is a key element of investor success. Essentially, an investor needs to rank quite highly in this particular field.
The Biased Opinion
Another area where the emotional investor is tripped up is a biased opinion based on an “emotional overload”. A typical example of this dynamic is where an investor falls in love with their investment. It can do no wrong. What would normally be considered warning signs to an astute investor are overlooked. The emotional element is once again in the driver’s seat. Reality has been ignored, and a weight of emotional pressure is about to create a financial catastrophe.
When a significant number of individuals suffering from this handicap are grouped together, we have what is commonly known as an echo chamber. Constant affirmations of their distorted reality lead to an inability to perceive and articulate correctly. One could argue that it is also a case of the blind leading the blind. These biased viewpoints occur in both positive and negative scenarios. In other words, it also takes place in reverse.
This is where an individual, or group of individuals form a negative view regarding a particular investment. This view ignores the positive or attractive aspects of the asset in question. It is solely based on an emotional viewpoint. As a result, fundamentals are ignored and not taken into consideration. The obvious outcome is a missed opportunity. Personally, I am not a fan of ETH. However, in 2019 I was faced with a challenging dilemma.
As I analyzed the data and sentiment of the time, an extremely bullish case for Ethereum began to develop. I was faced with a tough decision. Was I going to take an emotional approach, or align my investment decisions with the data at hand? Eventually, I was able to make a decision based on facts, as opposed to one based on a personal viewpoint. Ethereum ended up being a majority holding in my portfolio. My profits on ETH sustained me for much of the recent bear market.
Emotions don’t belong in the investment world. It’s that simple. As an investor, one needs to remain objective, as well as data-driven. Allowing emotions to control your investment decisions will ultimately result in missed opportunities and disastrous outcomes. It’s a constant challenge and one that every investor needs to take seriously. All the best! Catch you in the next one!
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.