All About Emotional Investors
Emotional investors make decisions by impulse or hype. Their investments are fueled by irrational exuberance and irrational pessimism.
Some costly mistakes emotional investors make:
1️⃣ Overspending, sometimes caused by greed. Emotional investors systematically overestimate their ability to predict the next move, take short cuts, rely on stories rather than detailed data analysis; and end up taking excessive risks.
2️⃣ Remains in the game when the chips are down. Emotional investors end up riding an impending correction that swings valuations in the opposite direction.
3️⃣ Staying out of the game while making wrong calculations. Emotional investors miss impending opportunities that eventually revert judgements in decision making.
4️⃣ Looking for ways to recover losses, hence quitting winning & long term opportunities and holding on to the losers, this is also known as disposition effect.
The bottom line: Investing with emotions can be harmful to your wallet or purse.