I am sure most of you have experienced that sickening feeling when an investment goes wrong – instead of beating yourself up for being stupid, it might help to understand some of the entrenched emotions and biases that led you to make the bad decision in the first place.
This occurs when individuals rely too heavily on initial information when making decisions. For example, anchoring to the purchase price of a stock and not considering its current value or future prospects. FOMO is obviously in play here, and there are plenty of meme stocks out there that should act as a warning bell.
Good asset managers pay far more attention to a share’s long-term prospects than its current performance – but that requires a certain skill set that you might not have. During the pandemic, the markets were flooded with these get-rich-quick stocks on the back of Covid-19, without much thought as to how long this would last.
Having a DIY-approach if this is one of your biases will be extremely stressful. Assets do not have feelings. They don’t care that you bought them at their peak; they are now old, mouldy, and non-performing. No amount of cajoling is going to bring them back to their former glory. The only way to give that wealth a new life is to unlock it by recommitting the capital to other ideas that are aligned with your long-term investment goals.
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