Using Logic In Financial Investing By Avoiding The Bubble
When it comes to the everyday functions of our lives, we like to think that we have full control and are rational as well as logically dictating it. We believe that we have the capacity to weigh the good and the bad points of each decision that we make and the pick the best possible solution before we act. However, when it comes to our finances or managing our money, the thinking however becomes a little more muddled and blurry.
Money has always been a huge topic in our lives. There are numerous studies that prove it’s the number one source which causes stress, regardless if it’s in good or bad times. Money is also the main factor of conflict when it comes to couples, and the primary cause of fights, separation or even divorce, this especially during the earlier years of marriage.
Money Is The Root Of All
Whether it be a steady savings program where money isn’t accumulating as we’d like over the years, or it could be a significant real or even an imagined financial loss or gain, money can be an explosive emotional charge, making us become rationally challenged.
Social scientists has proven that once our emotions begin to run astray, that’s when our rational and our logical brain begins to shut down and defy reasoning. Once it comes back on again, we’ll then typically rationalize our behavior.
This simply put, when it comes to our investment decisions that are made when we’re overly excited or anxious, we’re not able to trust our instincts. We allow our impulsive brain to make our investment decisions for us, and it can drain our savings out wreaking havoc to our financial future.
Reacting To The Buzz Of The Financial Markets
The wild ups and downs that we’ve recently witnessed in the financial markets are now becoming the norm. This on a grander scale is a mirror of our instinctive behavior displayed in its purest form.
When tracking the (DJI) Dow Jones Industrial Average for instance, riding that roller coaster can fill us with both terror and excitement, this depending on the trading day.
This can occur when reacting to all the so called financial gurus “shop-talk” on the investment shows on TV for instance, where they make up speculative theories which can cause market frenzy and panic.
All they’re doing is just lending their ideas on why they think the market will bounce this way or that way. This then fuels our inner instinctive emotions, forcing us to believe them and then like sheep keep our eyes stapled to what happens next.
It can become an impulsive reaction to buying into the latest bull-run, or deciding to go short on a dropping bear market, or ultimately placing our money into gold bullion. Following the herd mentality can create more harm towards our finances than any other type of investing behavior.
The true reality of those “missed opportunities” when it comes to the market has absolutely nothing to do with our logical brains. They’re more similar to when lighting strikes, it will happen sometime and somewhere, but they’re impossible to predict. So placing your bet on where the next lightening strike will occur is a fool’s game.
Why You Should Invest Logically
Getting emotional and then investing the “farm” is nothing new for some. There are numerous stories of families dissolving their entire life savings including their house and their retirement funds on a good stock tip, or even going completely radical by placing every cent they own on a “lucky” spin on the roulette wheel.
So whether you roll the dice on the state lottery, the latest technology stock, soybean futures or the real estate market, what most will never get rid of is the impulse to go “all in.” Jump into the artificial frenzy that the crowd is creating by diving in head first into the next great bubble.
The Next Great “Bubble” Is Just Around The Corner
The thing about the latest Economic Bubble is that it’s certain there’s always a new “bubble” that just around the corner. It’s guaranteed that there will be a brand new one underway, one that you just can’t miss.
You will hear things like “This will never lose its value,” or “This is an absolute new, never seen before and an entirely new market,” or “Things are completely different now,” etc. etc.
This type of investing behavior will never change and will forever exist on a large scale since it’s the highly emotional response which is usually driven by greed and the group “herd” mentality. So what you need to do is make sure that you don’t fall easy prey to all the hype of the next “bubble” which will most likely crash.
So the next time that you hear…”This is the next best thing since the invention of the Internet,” your emotional instincts will automatically kick in and begin to get excited and anxious about the new product which you “must have.” What you’ve most likely stumbled upon however is the next new bubble.
So make sure that you stand back, take a deep breath and resist the immediate temptation for wanting to run with the herd. It could happen tomorrow or next week. One thing for certain is that it will happen, and if you follow the crowd, you will unfortunately most likely run off a cliff with them.