How fear and greed kill returns

Many of us repeatedly make the same financial mistake: buying high out of greed and selling low out of fear, despite knowing intellectually that it's a terrible idea.

This behavior is most evident in market cycles. When sectors are booming, people pour money into markets to chase performance. But when sentiment changes, and investments plummet, investors rush to escape.

We've seen this during the dot-com bubble, leading up to the 2008 crash, and more recently with technology sectors.

Consider this pattern: at market peaks, we can't buy fast enough. Three years later, at the bottom, we can't sell fast enough. And we repeat this cycle until we're financially drained. It's no wonder many are dissatisfied with their investing experiences.

We do this over and over, with stories like this surfacing monthly.

Imagine behaving this way in any other scenario. Walking into an Audi dealership and eagerly buying three cars at a 30% markup? Unthinkable.

We're wired to seek security and pleasure while avoiding pain, a survival instinct. Mix this with our herd mentality and the belief that safety lies in numbers, and you have a potent combination. When everyone else is buying, it feels safer to follow suit, lest we become financial prey.

However, this behavior is detrimental to investing.

Feeling fear and greed is normal, especially in turbulent markets. But acting on these emotions can harm us financially.

It's crucial to resist these impulses. This might involve staying out of the market, creating a plan, or seeking professional advice.

Understanding this can help us make better financial decisions. I hope it does the same for you.