I missed this article last week on Reuters regarding investing and psychology. Readers know I am a closet psychologist. Understanding how other investors are thinking is paramount in gaining an edge in any market. Understanding and controlling your own thinking, however, is FAR more important:
Not counting all the “black box” computers doing buying and selling, securities trading is a human and highly emotional business. Day in and day out, people have to overcome fear, channel their greed, and try not to be overwhelmed, Kiev said.
Too often, fear of losses prompts bad decisions.
“It sounds simplistic and easy, but human beings are not easy,” he said. “They tend get in their own way.”
Many thousands of people have become traders over the years, but few really know what they are doing, he said. Lack of knowledge and preparation becomes more evident when markets boil over, as they did in the past year.
Like Chesley “Sully” Sullenberger, the pilot who landed an Airbus A320 in the Hudson River two months ago, traders need to train for times when markets do not go their way, overcome emotion and avoid panic, Kiev said.
“That pilot who landed in the Hudson River: that was 30 years of training, preparing for that one moment. When it came, he had three seconds to make a decision that saved everybody on board.”
By trusting their abilities and their research, traders can beat peers who hedge their bets. Likewise, traders should not get emotionally attached to losing positions. Kiev counsels his clients to plan ahead and know their strengths.
“You need a goal, to set the framework for what you’re going to do,” he said. “You can’t focus on the target; you have to focus on the process.”
Want to be a more successful investor? Learn to control your emotions, avoid your animal instincts and understand what other investors are thinking.