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.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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