No one in the history of man will ever openly admit to this mistake to others unless they stand to gain from that expose. The truth is that we humans are just not as wise as we think we are and such decisions are precisely why I think we are actually quite foolish sometimes. While its true that the market is erratic and illogical so there is never a right or wrong move but rather a profitable or loss making move. That said, it is always wrong when someone buy high and sell low. What I would like to share about in this post is our thought process that leads us to make such poor and illogical decisions.
The irrational fear of losing money
As much as fear is crippling, sometimes it can also be a powerful motivation as well. This motivation caused by fear results in withdrawal, cowardry and illogical decisions. Think of all the scam calls that we have gotten so far, all of them are usually targeting people who are susceptible to fear and panic. That is no different from the kind of fear that we feel in the market when the market or a particular stock counter starts nosediving because of a random or seemingly legitimate trigger. The dip in asset prices resulting in a drop in our portfolio value but when fear strikes, we often imagine that this drop becomes permanent thereby making regrettable moves such as selling at a low especially during an upturn.
The markets can stay irrational longer than you can stay solvent
So not all of us are gamblers or rather investors who make decisions based on feelings, in fact, someone of us even use sound strategies to plan ahead for every move. However, what if the price falls way below what you have planned for? Will that not throw you off your game and make you panic even a little? This drop might be way more persistent and severe than any vested investor would have ever expected and that causes an inevitable sense of fear. We usually only buy into stocks and industry that we truly believe in because they will likely stand the test of time and volatility but somehow this has not been reliable in recent years as geopolitics and domestic governance has also become a sudden and impactful reason for investors to panic and sell just to shut down and have a “peace of mind.”
We are more inclined to follow greed than logic
When markets can go on extended rally despite multiple red flags, it shows how “reliable” is greed as a driver for asset price appreciation. Little did they know, the reason behind that climb is the same reason why they bought that asset in the first place, which is still greed. This begs the questions if investors should ever be involved any form of greed-related movements. Personally, I do not condone any participation in greed simply because it will eventually lead to a devastating end and that might sometimes be selling at a huge loss as well.
Closing Thoughts
I think when all else fails, we can just rest on the most basic logic of investing and that is the price of the company should not grow faster the value of the company. Using simple and logical value investing techniques, we might miss out on the insane rally of the lights of bitcoin, tesla and GameStop but we will still be able to reap substantial yields sustainably over time. Perhaps this is the only way we can stay sane and prevent ourselves from buying high and selling Low.
