Taking the Mystery out of your Money – “Human Emotion”

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September 6, 2019
Taking the Mystery out of your Money – “Human Emotion”

Image Copyright Ted Grussing Photography – Used with permission

In a previous blog, we began “Taking the Mystery out of your Money” by first discussing how important common sense is for successful investing.  This week, let’s take a look at how our emotions can influence investing.  To do this, we are going to tell you a little story, a fairy tale of the good servant “Peaceful” and his “Good Deed Kingdom” stock.

Peaceful is one of the many residents of the Good Deed Kingdom, which is ruled by King Good Deeds himself.  Well, one day Peaceful decided to submit King Good Deeds as a nominee for the Nobel Peace Prize. Now, this kingdom had gone public and all of its residents owned some of their kingdom’s stock.

So, before long, everyone began to recognize that this good news could cause their company’s stock to increase in value. Great excitement spread throughout the kingdom as they realized they could buy stock, wait until it increased in value, and then sell it for a profit!

Peaceful bought $1,000.00 worth of stock. And sure enough, as the word spread, the value of his shares grew to $2,000.00. He decided not to sell, even though he would make a profit. He thought if he held his stock a little longer, he could make more. (GREED)

However, not long after the value went up, he received notice from the Nobel Prize Committee that he had failed to read all of the disclosures. Unfortunately, fictional kings do not qualify for the Prize, only real individuals and organizations.

As he shared the unfortunate news, great sadness came upon the Kingdom and before long the value of their stock began to decline. Peaceful‘s initial purchase of $1,000.00 dropped in value to $500.00. He had bragged to all of his friends when his stock went up that he had made $1,000.00. Now he would have to eat those words and tell his friends he had lost $500.00. How embarrassing! And he wondered if he should sell his stock, what if it kept declining in value and he lost it all? (FEAR)

The good news is, Peaceful came to his senses and realized he did not make $1,000.00 when the value was up because he did not sell. Nor did he lose $500.00 when the value decreased because he did not sell. Greed had kept him from selling, but he had not acted upon fear. As a matter of fact, he bought more of his company stock because he recognized it was on sale and it would eventually go back up! He also made a plan that next time his initial investment went up a great deal, he could sell at least some of the profit and find another worthy investment for the proceeds!

So, the emotions of greed and fear (hanging on for a little bit more return), (got to get out before I lose more money) drive most investors to do the opposite of what they should do, which is to buy low and sell high.

Thank you, Peaceful for a great lesson! And King Good Deeds, we wish you could win the Nobel Peace Prize—your kingdom sounds like a nice place to live!