We have seen the enemy and it is us….
When it comes to successful investing in this era the laws of human nature have not changed. Humans are social creatures and for the most part feel good when they are part of the crowd. In this era of instant communication by “live business TV” and the constrant real time feed of the internet information flows real-time and on a global basis “emotional risk intensifies.”
Investing is not a local thing anymore and when the ” crowd” gets excited pushing investment values to and fro on an acclerated basis. This leads to sharper and more volitle moves in security prices.
The danger for most investors is that they get their information through the popular news flow and form their opinions accordingly. This is human nature but in the world of investing it is a dangerous and often costly exercise.
The emotional pull to be part of the crowd more often than not leads to buying investments at rich prices already bid up and therefore postioned for disappointment.
The most signifigant impediment to making successful investments is our own emotions and desire to be part of the crowd.
Now more than ever, when it comes to investing, the old saw applies; believe nothing of what you hear and half of what you see.
Great piece at the Wall Street Journal on a recent study on the reasons why investors get caught up in the crowd mentality. Read it here.
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