The Secret that Separates Success from Failure
Investment decisions are not solely determined by numbers and charts. In fact, the success of an investment often hinges on emotional factors. This is a factor that many people tend to overlook. Warren Buffett once said:
If you have an average intelligence, what matters most in investing is not IQ but the ability to control your emotions.
Warren Buffett
We often think we “know everything” about investing theoretically. However, when it comes to crucial moments, it’s easy to make instinctive, wrong decisions. In investing, our worst enemy is none other than ourselves. Hearing this might make you uncomfortable, but understanding and managing this emotion is critical.
Two Extreme Investment Stories
Let’s take a look at the stories of two interesting individuals. The first is Anne Scheiber. In 1944, at the age of 51, Anne retired and began investing with $21,000 (equivalent to about $297,000 today). She wasn’t a financial expert; she simply invested her savings in blue-chip stocks and steadily grew her portfolio. By the time she passed away at the age of 101, her portfolio had grown to $22 million. The secret? She consistently invested with a long-term view, unaffected by emotions.
On the other hand, the story of Brazilian billionaire Eike Batista is quite different. In 2012, he was the 7th richest person in the world, but within just a few years, he lost everything. Why? Greed, overconfidence, and poor investment decisions took it all away. These two stories starkly illustrate how crucial emotions and investment behavior can be.
Why Our Brain Becomes an Obstacle
The fact is, our brains are still adapted to the days of hunting and gathering. The survival instincts from those times are now a hindrance in today’s financial markets. Fear causes us to overreact to market instability, and greed pushes us to take excessive risks. These emotional biases hinder our ability to make rational decisions, ultimately harming our investment performance.
For instance, during market instability, many investors panic and sell their assets. Conversely, when the market is overheated, they get caught up in euphoria, leading to overly optimistic investments. These emotional reactions often lead to investment failure in the long run.
Emotional Control Is Key to Investment Success
Ultimately, to succeed in investing, you must be able to control your emotions. This isn’t an easy task, but it’s not impossible either. Like Anne Scheiber, overcoming the temptation of emotions and maintaining a long-term perspective is the most reliable key to investment success.
So, how can you avoid being swayed by emotions? First, clearly set your investment goals and strategy, and manage your emotions accordingly. Second, stay consistent with your investment plan without being swayed by market volatility. Finally, find an investment approach that suits you and stick to it.
Conclusion: A Commitment to Investment Success
Investing is not just about growing your money. It’s about understanding and controlling your emotions. We all must overcome our worst enemy to become successful investors. Therefore, it’s crucial to understand your investment psychology and make wise decisions based on it.
I hope you can also overcome your inner battle and walk the path of investment success. Start today. Develop the habit of consistent, emotion-controlled investing. At the end, a big reward will surely be waiting.
Reference: Safal Niveshak, “The Psychology of Investing #1: Conquering the Investor’s Worst Enemy”