How to combat fear of risk, loss and regret in stock investing

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As we have seen in previous posts, risk aversions, losses and regret make investing in the Stock Market an unusual activity. Stocks are so volatile and there are so many different options to choose from that the risk of losing in the short term or not taking advantage of good opportunities is significant. So, the best way to prepare is to know from the outset that our career as investors in the stock market will be plagued with obstacles.

There are two essential aspects that we must always keep in mind. First we have to know what we are really like; how we react to temporary losses, how we separate activity from the pure investment of an exercise that affects our ego, how we objectively analyze the information before us, etc. And second, we must look at what is truly important: the long-term overall result.

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To get to know yourself better, I invite you to make the following reflections….

  • Do you consider yourself a good investor for not selling a stock you are losing on?
  • Do you keep stocks in your portfolio for fear that when they sell, they will rise in price?
  • Do you prefer to invest in stocks that do not have too high a historical volatility?
  • When you have bought stock, do you ignore the news regarding the company and the unfavorable recommendations for that stock?
  • When you have made a quick capital gain, do you want to sell the sooner the better?
  • Do you like to buy more shares as the price falls to lower the purchase price?
  • Do you have stocks in your portfolio that have lost much of their value and you are no longer monitoring the results or the news of the company?
  • Are you reluctant to read the news of a company as soon as you have bought its shares? Does the same thing happen with those securities that you have been about to buy, even though you did not purchase them in the end?

If you answered yes to most of these questions, you are too conditioned by fear of loss, risk, and regret. But don’t worry, it happens to most investors and if you follow several recommendations, you can minimize its effect.

For starters, focus your attention on the perspective of profits and not on losses, since it is the only criterion that matters for the efficient investor. For this, keep in mind that your objective is not to not lose money in any operation, but rather to achieve the best overall result.

An important factor is having access to the independent advice of a qualified professional. This person helps us to distance ourselves from these emotions that play tricks on us and gives us additional and objective perspectives for correct decision making.

Never forget that there is an opportunity cost to keeping those shares in which you are losing money. That money that you have locked in stocks that do not stop falling in value does not allow you to make other investments. It is true that over time you can return to equilibrium in one position but pay close attention to the consequences: the lack of profit compared to the other investments you could have made with this money lying idle.

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Meticulously record the results of the securities you hold, the evolution of the securities you have sold after you have disposed of them, and the performance of the securities you would have liked to buy if you had enough liquidity. This will give you a broader perspective of whether the investment and divestment decisions were right.

Being cautious is a good option when it comes to investing, but excessive zeal when taking risks and the fear of incurring losses and repenting can cause us to make many bad decisions.

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