Emotions And The Stock Market
At this point, you should be a master expert of what to look for in a great investment.
Most importantly, you should know how to find a great company at a great price.
Now is the perfect opportunity to address an investing topic of critical importance...
Controlling your emotions.
This is just as important as buying a great business at a great price.
Because if you lack the power of conviction to stand behind your investment decision, you'll bail out at the wrong time and lose.
Learning to control your emotions is critically important to your investing success.
Most everyone can master the lessons we've studied so far. But only a small percentage of those people can master their emotions, ignoring all the distractions and noise in order to make sound, rational decisions.
Controlling Your Emotions
Of course, I can point out the need to control your emotions when it comes to investing...
But I can't do it for you.
I can't even teach you how to do it, except to point out that should be aware of the problem.
It's very difficult to confidently stand behind your investment decisions when everyone you know, everyone on TV, and everyone in the media is screaming for you to do the exact opposite.
The best I can do is advise you to make every investment decision based on sound, rational analysis of the company and its market price.
Never let emotion, the direction of the market, a gut feeling, or anything illogical influence your decision to buy or sell a stock.
If you do, you negate all the advantages you've gained by following the philosophy of buying great companies at great prices.
This valuable investment lesson is perfectly embodied in a famous story by Benjamin Graham.
It's the story of Mr. Market...
The Parable of Mr. Market
Benjamin Graham's story goes something like this...
Imagine you own a business, and you have a single partner...
Now, Mr. Market's a bit of an eccentric fellow, predisposed to wild mood swings.
Well, why don't I let Warren Buffett tell you the story.
In The Essays of Warren Buffett: Lessons for Corporate America, Warren tells the story of Mr. Market to perfection:
What story better illustrates the folly of letting your emotions dictate your investment decisions?
Don't ever let your emotions get the best of you.
Make sure you stay free of Mr. Market's influence at all costs.
Because, as Warren Buffett so wisely said...
"If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."
The Market as Life
Think about it...
If you can't make up your mind and commit to your relationships, then you're doomed to suffer the consequences - short and unsuccessful relationships...
If you can't make up your mind and commit to a career path, then you're doomed to suffer the consequences - a life of constant job hopping and frequent dissatisfaction...
And if you can't make up your mind and commit to a well-rounded plan of diet and exercise, then you're doomed to suffer the consequences - low energy and poor health...
So why should the investment world be any different than the real world?
If you can't make up your mind and commit to an investment decision, then you're doomed to suffer the consequences - frequent, ill-timed trading and poor investment returns.
This is a common obstacle for 95% of the investing public.
So why participate in their lack of self-discipline?
If you've invested hours and days of your time painstakingly researching the stock market in an effort to find the best possible investment...
Then don't blow it in a moment of weakness.
When the market's down, it doesn't mean the sky is falling and the apocalypse is imminent...
And when the market's up, it doesn't mean the business cycle's been eliminated and you'll never lose money again...
The direction of the market has nothing to do with the individual merit of your investment.
So don't worry about the market.
When you make a commitment, stand by it.
Either you own a great company at a great price and you believe in it, or you don't.
There's no in between, and day-to-day events on Wall Street shouldn't change your mind about that.
Trust Your Own Judgment
So make an investment decision.
As long as the company's business fundamentals remain intact, and the price hasn't increased to a ridiculous all-time high, then your decision remains a good one.
Don't let your emotions convince you otherwise.
Just buy great companies at great prices.
Hold them for as long as they're great companies at great prices.
Ignore the stock market during the time in between, and you'll rack up spectacular investment returns!
Do you agree?
If so, and you follow the guidelines presented above...
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