Tue 30 Dec 2008
Presumably yo are pretty uncomfortable about the current state of financial markets you can be reassured that you’re not alone. Almost all investors are experiencing some discomfort from the recent falls in asset values, yet some handle it better than others.
A big influence on your investment outcome over the long term depends largely on how you manage your emotions in relation to the market’s volatility can have. Here we explore the influence of our emotions on financial decisions and look at what we can do in times like these.
Our emotions are fundamental in the decision making process and influence our behaviour, thoughts and actions. Understanding our emotions and learning to manage them can improve our overall investment experience.
Our feelings make us focus on information that matches our mood, according to studies by behavioural scientists. So, for example, if the market is trending upwards, and your mood is positive, you would tend to focus on information that confirms these emotions, (as was probably the case throughout the first half of last year). Conversely, we are more likely to be influenced (unconsciously) by information that is negative in the current climate.
Our feelings also influence what information we retrieve from our memories. For example, if you are in a positive frame of mind, you are more likely to focus on positive possibilities. Given the current sentiment, we can assume that most people are currently focusing on negative possibilities.
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