The Challenge of Fighting Your Emotions and Changing Your Perspective

Losing money brings more emotion than making more money.

Feb 2, 2014 at 7:00PM

What a difference a year can make. In 2013, the Dow Jones Industrial Average (DJINDICES:^DJI) closed up 26.5%, while the S&P 500 (SNPINDEX:^GSPC) ended the year higher by 29.6% and the Nasdaq recorded a 38.32% gain. But after just one month in 2014, all three indexes are down: 5.29% for the Dow, 3.55% for the S&P 500, and 1.74% for the Nasdaq.

Why have investors changed their tunes so dramatically in the past month? Heading into 2014, we heard one analyst after another saying why 2014 would be another big year for the markets. But now those opinions seem to be changing, and investors are nervous that a larger pullback is coming. On Wednesday, I even heard rumblings that some market participants thought the market was about to crash, because of some investors' concerns about what the Federal Reserve was going to do.

This kind of behavior tells me that the fear of losing money is greater than the satisfaction in making it.

In 2008, when the markets were tanking and the Dow lost 34% in one year, investors, politicians, pundits, everyone acted as if the world was coming to an end. There were investigations into why the markets fell, policies were changed to help boost the economy, and fear ran rampant that even more market value would be lost.

Flash forward to 2013: The Dow gains 26.5%, but there weren't any parades or the declaration of a national holiday, or anything else you'd consider the extreme equivalent of the overreaction to the 2008 market plunge.

Why do we act differently to gains and losses? Problem gamblers may give us some answers.

Some psychologists believe that problem gamblers actually like losing money more than they like winning it. The belief goes that these gamblers get more of an adrenaline rush from a sense of losing control, which excites them when they're losing. The thrill of winning money, in contrast, is much milder.

These findings are just theories, but they may give investors better insight into why they feel the way they do when the stock market falls. It may also help them pause and carefully re-evaluate their choices when they find themselves in such as overly excited state.

Many of the greatest investors have repeatedly noted that while investing takes some amount of skill and knowledge, being able to control one's emotions is even more important. And finding that control may be easier than many investors might think. All it takes is the proper perspective.

Here's what I mean. When the markets are soaring, it's hard to find good companies at a fair valuation. But when the markets are falling, finding good companies on the cheap becomes much easier, as all the good stocks start to fall within your reach. So if you think about a market pullback as a good thing, since you can get a bargain on stocks, then a falling Dow may not seem like such a bad thing anymore.

You won't find yourself tempted to sell in a panic. Instead, you might even feel like throwing a parade or declaring a holiday.

More Foolish Insight
Warren Buffett has made billions through his investing, and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Matt Thalman owns shares of Berkshire Hathaway. The Motley Fool recommends and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers