{"id":5787,"date":"2020-05-27T14:41:58","date_gmt":"2020-05-27T06:41:58","guid":{"rendered":"https:\/\/www.infinitysolutions.com\/?p=5787"},"modified":"2020-05-27T14:41:58","modified_gmt":"2020-05-27T06:41:58","slug":"keeping-the-emotion-out-of-investing","status":"publish","type":"post","link":"https:\/\/www.infinitysolutions.com\/blog\/keeping-the-emotion-out-of-investing\/","title":{"rendered":"Keeping The Emotion Out Of Investing"},"content":{"rendered":"

Markets have had a bumpy 2020 so far \u2013 thanks Covid-19 \u2013 and volatility makes investors understandably anxious. Often it seems like the logical step to falling share prices is to sell, but this kind of emotion-led investing rarely turns out to be a good decision and can even be catastrophic in the long term.<\/p>\n

We thought it might be useful to substitute cars for stocks to show just how irrational knee-jerk selling actually is.<\/p>\n

So, imagine the price of new cars has just dropped 20%.<\/p>\n

If you\u2019re about to buy a new car, that\u2019s great news. You are going to bag a bargain.<\/p>\n

If you already have a car and you\u2019re not planning on changing it any time soon, the 20% decrease in the price of new cars is pretty much irrelevant to you.<\/p>\n

It\u2019s only if you are planning to sell your current car that the price drop might be problematic for you \u2013 it might be harder for you to sell and you may not get the price you had hoped for.<\/p>\n

It\u2019s actually no different with stocks.<\/p>\n

At the end of March, for example, the FTSE 100 posted its biggest quarterly fall<\/a> in three decades, a trend which was mirrored on pretty much all the world\u2019s major stock markets. Cue anxiety-inducing headlines and panic selling. But, applying the car logic to the situation, it becomes clear just how inadvisable selling at that point was:<\/p>\n

Those wanting to buy stocks were quids in \u2013 they could get much more for their money in March than they could in January.<\/p>\n

For anyone already invested and not planning on offloading stocks any time soon, the fall in prices was immaterial. History tells us that markets are cyclical and when prices fall it is only a matter of time before they rise again. There is no reason to suppose that a pandemic \u2013 however unprecedented – will change this.<\/p>\n

That just leaves those looking to cash in their stocks in the short term. Yes, the plunge in March was bad news if you absolutely HAD to sell immediately, but that only applies to a small minority of investors. Fast forward to May and we have already seen a significant rebound of European, UK and US share prices. You won\u2019t have seen much about the mini recovery in the media of course because the gradual rise of share values over a number of weeks doesn\u2019t garner anywhere near the same kind of attention as the drama of plummeting share values.<\/p>\n

While prices are not back to their January levels there is no denying that March\u2019s panic sellers will be kicking themselves for the emotion-led decision they made. They could well have committed the ultimate investment no-no of selling at the bottom of the market.<\/p>\n

The fact is that emotion-led investing tends to drive investors to buy high and sell low, which is the exact opposite of what they are looking to achieve. If you\u2019re investing to attain long term financial goals such as a comfortable retirement or to cover university fees, the golden rules of investing apply whatever the markets are doing:<\/p>\n