On your first dance, you hold your new wife and say “I’ll never let you go.” When your first born arrives you cradle the baby and say “I’ll love you forever.” When you win your first award, you tell the crowd that “I’ll cherish this moment for as long as I shall live”. When you make your first investment, you tell your friends “I’m selling this the moment it loses me money”. For many things in life, we keep it forever, when it comes to money we get crazy emotional and supplement it with irrational behaviour.
So what gives? Does money trump all emotions? Is it bigger than the important events that happen in our lives? Is losing something of monetary value more important than missing out on the first ballet recital of your six year old daughter? Money makes people do stupid things and it is this emotion that makes as all bad investors.
If you are truly trying to build wealth and you want to be a successful investor, then the money that you put into your investments should stay in your investments. Investing isn’t like roulette, you shouldn’t be logging in to your brokerage, picking a random stock symbol and hope you hit it big. That is not investing, it’s called gambling. As an investor, you should be thinking long term, if the money you have invested is the money that you need to pay your rent for next month, then you need to seek professional help. Building a good portfolio that suits your personal goals should be your first priority.
I’ve been investing back since 2006, and during that time many events have caused my investments to decline at a rate greater than 10% a year. Nothing beckons more vehemently than the credit crisis of 2008 when people mass panicked and sold off all their equities during the US credit crisis? Despite a large hit on my portfolio that was greater than 25%, I never sold. I kept faith that my investments would rebound and used common sense to realize that the Apocalypse wasn’t happening and that everyone in the world would not be fired from their jobs. To this day, my instincts were right. Companies still exists, we don’t roam the land hunting and gathering for food, very little has changed and the markets have bounced back to reflect it.
The latest dramas to unfold in the United States were the government shut down and the games of chicken played by congress on the debt ceiling. The media grasped these events and tried to scare the masses into a panic. Mainstream media love these types of events because it plays with the emotions of investors. Not only do they want to see the crash, but they want to make it seem glorious and exciting. The fact is, life goes on and it’s boring. Just don’t let the anchor on CNN tell you that. Despite the hoopla that was generated over the past two weeks, the US markets wavered but then surged to an all time high. The government shuts down, but it doesn’t mean the world does. The only embarrassment experienced was the White House and those crazed individuals that decided that unloading their long term investment portfolio was the right thing to do.
I’m not proclaiming that holding an investment forever is the best strategy to implement. Certainly there will be events in your life that will require to draw upon the reserves that you have built up. Perhaps it’s your own business that you want to invest in to see if it works, or an unexpected baby occurs that requires you to cash out some of your savings. Each individual is different and thus making that decision is something that you should be comfortable making.
If you’re selling your investments just to try to time the market then stop. Ask your the question “Why?”. Do you have a crystal ball that tells you when the market has reached its peak? Are you selling just because of the news you see in the media? Stick to the original goal that you set yourself to accomplish and commit to it. When making an investment it should be a long term goal. Flipping stocks and day trading is akin to gambling at the casino. Getting rich quick schemes are only possible through sheer luck and you probably have better odds hitting the jackpot by playing the lottery. Don’t let your emotions control your actions and certainly don’t let the media get to your head.