A Tip for Sounder Investment: When Markets Misbehave, Make Sure Your Emotions Don’t Follow

The markets are a mess. That doesn’t mean you or your investment reactions should be. When everything is going well, it doesn’t take all that much for good investors to keep being good investors. It’s during the dives that even the best ones can get swept away – and it’s at those moments when it is most crucial to keep your emotions in check and remember the basics of good investing and, crucially, self-control. No one said it better than Warren Buffett, in a 2008 editorial: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

That was 2008. It’s just as true today. So, do yourself, your investment performance, and the markets as a whole a favor and take a moment to think—coolly, rationally, reasonably, logically, unencumbered by the vicissitudes of today and the immediate-term horizon of tomorrow—and only then act. Don’t let fear—or any other emotion that is not well-placed, for that matter—guide your judgments. Don’t commit the fallacies that are so common in the way we think: relying too much on incidental emotion, focusing too much on the present even when that focus is contrary to what would actually be better in the long-term (a tendency known as hyperbolic discounting).

If you find the advice easy enough to understand theoretically but much harder to put into actual practice, you can always try some self-talk – even the Daily Trading Coach recommends it. 

Whatever you do, just remember to cool off before you act. Your future self will thank you.

[photo credit: Getty images]