Psychology again

Psychology again                               

When you buy a stock there is a tendency to fixate on the price you paid for it. If it starts to go up after you bought it, you feel good, if it goes down you feel lousy. I know this is stupid. I know it’s just the noise of the market. But we’re talking human nature here. And human nature has its roots in the Ego. Yes, him again. One way to deal with this is not to look at the stock you just bought. Tune the noise of the market place out. Do I do this? No I don’t, I watch things everyday so despite the advice I am giving you I don’t follow it myself. Don’t blame me I’m only almost human. It’s my Ego. Can a person say one thing and do something else? Welcome to the human experience.

To illustrate what I’m talking about, imagine you bought a stock and it goes straight down for a year (I’ve done this). You hate it. Everyday you check how much money you have lost on this holding. You see the red minus signs in your account. You have a history with this stock. It can affect your judgement. Maybe you want to sell the thing just as it’s about to base or to go up. Someone else who steps in and buys it may feel great about it because they bought the same stock after it went down and its now going up. The stock doesn’t know who owns it. All of this crap I’ve just described is coming from your own head. You are creating it. It’s not the stock, it’s you. It’s always you, remember that. If you were to sell the thing and buy it back again and it started to go up it would change your whole perspective on the holding (I've done this too), you would now feel better about it. So even though I’m a victim of my own thinking I must force myself to stand apart from what is happening and try to observe my own behavior. Self observation is a key not only when you invest in the stock market but in your everyday life as well.

One way to combat this affliction of ourselves is to become more familiar with the underlying fundamentals of the company you're holding. If you can gain an insight into why you are holding it in the first place it will help you deal with the market's daily perception of its value. Ask yourself what you know about the company of this stock that the market isn't appreciating right now. If you steal your investing ideas from other people this is something to bear in mind. But it is still difficult to hold on to a losing stock so above all observe your own reactions to what you are watching and what you are doing.