“If you don’t know who you are, the stock market is an expensive place to find out.” Adam Smith
You know what your biggest market risk really is? Not volatility. It’s YOU. Or rather YOU acting on emotions.
Any decisions based on fear or ignorance are never good in the long run. Their only purpose is to defuse tension so you feel better in the short term.
Research studies prove that people, you and I, hate to lose more than we love to win.
So, when markets correct (go down 10%), which they do quite regularly or when markets crash (fall 20% or more) which they do every so many years, our emotions, especially fear, take over. And we make very bad choices.
It also happens in reverse. When the market is on a run, there’s a tendency to take on too much risk. And follow the herd…like so many did during the tech boom and real estate boom.
That’s where knowledge—of the market AND of yourself—plays a critical role. The more you know about the way investing works AND what makes you tick, the easier it is to separate from the herd, manage your emotions, and make wise investment decisions.
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