Emotions In Investing - Do Some Research Right Before You Purchase A Stock
Humans are all emotional beings. We don't always make decisions rationally. Emotion is part of us as investors. Investors may feel better towards stocks at certain point or they might feel that owning stocks are risky and avoid it at all costs.
Investors may possibly also feel attached to a specific business and continue owning the stock without regards to how the company is doing. For example, you may like Google's search engine so much that you decide to buy the stock at $350 without doing any research.
You figure that Google's internet search engine is so much better that buying the stock will provide you with profit, right? Wrong. Now, I am not here to bash Google as an investment, but examining an investment goes beyond the products and companies.
Most investors can identify good companies and products. It really is quite easy. You know that a Mercedes is actually a better car than a Ford or a Civic.
The next question is how much must you pay for a Mercedes or a Civic? This requires us to put aside our emotions for a second and think clearly.
Sure, you want to have a Mercedes in your life. It truly is luxurious and has fancier features than a Civic has. But, that does not mean you ought to overpay for it. It works similar with stock investing.
Google is a fantastic search engine, probably the best that is ever produced so far. Sure, you probably spend more for Google than other generic search engines. But, please don't over spend. You invest in Google to profit from it not because you like its products.
So, how do we eliminate emotion from our investing selection? We can't eliminate it completely but there are certainly tools that might help.
One would be to calculate the fair value of a common stock that you are investing in. I covered this lots of times, but basically, the fair value of an investment is dependent upon the streams of profit generated by it.
In the long run, if business X earns more than company Y, then company X will likely be valued more than business Y.
For a company that's growing such as Google, you'll be able to incorporate its growth and calculate the fair value with growth. I have talked about this once and you are welcome to check our commentary section.
If you're considering purchasing stocks for a company going public, be sure you've done all your research. Many companies go public to boost their business plans. For more information, search: company go public.
I know I didn't exactly give you the very best solution to the difficulty. Emotion is hard to ignore. I am not immune to that. But following your feelings will cost you a lot of money.
Just watch those investors that bought stocks during the NASDAQ peak in 2000. Don't follow the herd and keep your focus on the fair value of your stock. You may do really, truly well.
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