In th last post we talked about how narcissism – an excessive love of one’s self – can cause one to buy things well beyond one’s means as a way to get praise from others. Narcissism causes people to seek the praise and admiration of others to an excessive amount. It also causes them to be easily offended by any sort of criticism.
Beyond affecting spending, it can also affect stock trading. It may cause you to think you can somehow day trade your way into wealth even though the odds are well against you. It may also cause you to hold onto losers, not wanting to admit you made a mistake by selling, and perhaps sell winners too soon for fear of them turning into a loss. This isn’t a sensible strategy. It is an attempt to gain praise and limit criticism from others. It is ego-stroking.
A successful stock investor won’t have a lot of exciting stories for the cocktail parties. Real investing is really quite boring. It also involves controlling fear by holding onto winners so long as the underlying fundamentals of the stock remain strong, and controlling ego by cutting losers as soon as one realizes that a mistake was made.
This isn’t to say that you hold onto winners and watch them turn into losses, or that you sell a stock as soon as the price drops below where you bought it. It means that you are less concerned with the price of the stock than the fundamentals of the company. Fundamentals don’t change rapidly, so you shouldn’t be trading rapidly.
You also don’t convince yourself that you can see something in the price patterns of the stocks that no one else can see, or come up with a valuation scheme that no one else has developed. This is a fool’s game and many before you have lost a lot of money trying. Stick with the boring approach that works.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.