As you may have noticed in many films, the psychological profile of the stock investor is presented as that of a greedy and dehumanized person who acts only in his own best interests … although it is usually stereotype, nothing could be further from the truth.
In real life, we observe that investors can have very different psychological qualities, Which contribute more than we realize to investment decision-making.
In the following article, you will be able to discover the relationship between psychology and investing through the analysis of the main psychological qualities that characterize stock market investors.
The relationship between economics and psychology
The stock market is a matter of economics, but it has a very close connection with psychology. The market reflects the interactions between millions of people, who make investment decisions based on their feelings and emotions.
These more expert investors know that the markets rise when investors are in a state of euphoria, and fall sharply when investors are caught in fear and panic. These factors make a good investor not only a specialist in technical issues related to the present and future of companies, but also an acute analyst of the psychological climate at all times. And it is that this climate affects very directly the revaluation or the depreciation of certain companies and markets.
Personal and psychological qualities involved in investing
To understand this whole process, below we will talk about the psychological characteristics that most influence long-term investingIn order to understand which variables affect the investor the most when it comes to managing their own money.
Ambition is one of the fundamental qualities of the stock market investor. When we invest, we do so with the aim of maximizing the profitability of our savings whether in the short, medium or long term.
It is this same quality that we are responsible for researching and analyzing different markets and companies to detect these excellent companies listed at low prices. To be an investor, you must know how to optimize time and resources. Thanks to ambition, we will be able to set quantifiable objectives to gradually improve our results.
Planning helps us to develop our own investment strategy will be very useful for us in knowing how we should act at all times in the financial markets.
The investment plan describes all the rules that will follow our investments, the market in which we operate, the risk we assume per transaction, the indicators we use, or the percentage of money we invest in each company.
Faced with an environment as evolving as the current one, investors must have a great ability to adapt to detect new trends, growing markets, or possible bubbles that could end up affecting their investments, such as the financial crisis. and real estate in 2007.
Adaptability is something that we can learn from our own experience through the different situations that we have experienced in the markets. But we can also learn by reading, by analyzing the historical events that have changed the course of the markets, such as the crack of the 29th, the oil crisis of the 80s or the Internet bubble in the year 2000.
Investor discipline depends on several factors, including discipline in our investment strategy and discipline in savings. The discipline in our strategy is to follow the rules and guidelines set out in our investment plan.
On the other hand, the discipline of saving is to set aside a certain percentage of our salary each month to allocate it to investing. With discipline in these two areas, we will be able to generate good wealth over time.
Patience is not only the mother of science, it is also the mother of long-term investment. In today’s society, we are used to demanding immediate results in order to quickly meet our expectations.
However, when investing, things work a little differently. Long-term investment isn’t like the 100-meter race, it’s more of a marathon in which you have to be patient, endure inclement weather and exhaustion to be able to cross the finish line.
Resilience is the ability we have to cope with situations of stress and pressure. In the markets, we encounter this type of situation every day, and it is essential to have a good emotional balance to get up again whenever our emotions and insecurities hit us.
In times of crisis, this is where we need to be most resilient. Although our investments suffer heavy losses, in such situations it is when the market gives us greater investment opportunities, which will provide us with excellent returns once the storm has passed.
7. Continuous improvement
Continuous improvement is a quality that allows us to value the previous six qualities day after day, so it is important to work on our weaknesses so that our psychological qualities are more robust.
There is always room for improvement in everything, and if we manage to improve each day in the way we plan more effectively, in the discipline of our investment plan, in adaptability to new environments, or to be the more patient in certain market situations, we will be able to improve remarkably as investors. More so, when the economic system, technology and agents influencing trends are factors, the complexity increases rapidly.
The balance between technical and psychological skills
In order to obtain good results in the investments we make, it is imperative to combine our technical skills with our psychological preparation.
A person who has excellent technical preparation but does not know how to control their emotions when investing will lose money in the stock market consistently, as they will make investment decisions influenced by greed, fear, panic, or fear. ‘euphoria.
So that this problem does not affect us negatively, it is strongly recommended to be trained, first of all, in all those investment techniques that allow us to operate safely and reasonably, and to work the psychological part to from the moment we start investing with the real. money.
- Massé, Pierre (1963). The choice of investments. Sagittarius.
- Thorp, Edward (2010). Kelly Capital Growth Investment Criteria. Scientific world.