Tuesday, February 21, 2006

Fear: An Investors Biggest Friend & Worst Enemy

Although I've laid out a very conservative and creditable plan for using leverage (see the Leverage Series, just completed) to help an older couple with poor retirement prospects significantly improve their future, many people will see the same plan and completely pass it by.

Why? The reason is usually fear. However, many people won't admit to that; they'll talk about the market at a peak (although they might know very little about the market), or use some other justification to avoid changing their situation. Many great investors have said that managing one's own emotions is the largest hurdle to becoming a successful long-term investor.

In this way, you can avoid selling when "the market" has declined in value (and in fact look to BUY at that time), and not panic and sell your own investments (or "rebalance" from a position of emotional weaknesses) during a market downturn. Managing your own emotions also allows you to avoid chasing a hot market or sector, as many people did (like I did, too!) during the NASDAQ rocket ride in 1999 - only to be shortly followed by the crash thereafter.

Being emotionally balanced and remaining committed to the long-term, despite the markets burps and belches, is the best way to have the success in the long run.


The Confused Capitalist

No comments: