What was I thinking?
Whenever I do any investing I try not to listen to naysayers but this is easier said than done. We often make investment decisions based on our emotions, mood or simply herd instinct and this can lead us to make mistakes. This is known as behavioural investing.
The tech bubble of the 1990s is a great example of herd mentality. People made fortunes from hi-tech stocks as the prices skyrocketed but these companies had very little underlying value. The media perpetuated this by using sensational headlines that may sell more newspapers but unfortunately caused investors, who were lead to believe that technology companies were a sure thing, to jump on the band wagon. Then 2002 happened, the NASDAQ plunged and many people lost their shirts! Similarly, during the 2008 meltdown many people panicked and sold their investments and, as a result, incurred huge losses. Emotional reactions to good news or bad news are quite natural but investors should try to overcome these reactions by pausing and thinking before acting in order to take advantage of market fluctuations that happen over time.
To become a disciplined and rational investor read these and other great books available on this topic at the Toronto Public Library:
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