How Fear Can Lose You Money

I found this article on MSN.com "How Fear Can Make You Lose Millions". It has a paragraph that recorded an October 10, 2002 headline in the USA Today "Where's the bottom? No end in sight...". The article says that it just so happened that this was the most recent bottom in the Dow Jones Industrial Average. In hindsight it was the day to buy instead of a day for fear.

Fear can be a good thing if you are a speculator or have a very short term focus. If you are investing in things like options, futures, or an individual stock.

Fear is not a good thing for a long term investor. The world's greatest investor is Warren Buffet. Does he invest out of fear? I think the answer is no because I have never heard or read where he used this word. Is he selling his investments in a downturn just because it is a downturn? No, he is a long term investor who invests based upon fundamentals.

If you have a portfolio that you are comfortable with and have a long term horizon you should never make investment decisions based upon fear. You hurt your future by becoming emotionally attached and listening to the media.

Emotionally Attached: It is human nature that when an investment is going up that it makes us feel successful because we were smart enough to invest in it. It also makes us feel not so smart when an investment is going down because we were dumb enough to invest in it. Isn't the object to buy low and sell high. When we get emotionally attached we tend to do just the opposite, buy high and sell low.

A natural tendency exists to invest more money in successful things so we tend to buy when something is going up. We want to avoid emotional pain and tend to get rid of it when it is going down.

Media: Why does the media exist? To make money for the media business. When you listen to a radio station, watch a TV channel, or read something in print the company that owns this media ultimately needs your attention because of money.

A media business needs more subscribers or listeners. Normally journalist rather than investment professionals write these articles. To sell more media, articles tend to feed your emotion. So when things are going up the media says that things are great. When things are going down the media says that things are bad.

A new media invention is the appearance of trading as investing. Take the show Fast Money or Cramer on CNBC. What is the purpose of the show? To get you to buy and sell stock. It is important to the brokerage firms that is sponsoring this show that you trade more often because they only make money when you buy or sell. A trading show gives the illusion of having a purpose of making you money fast. The main purpose for the sponsors of the show is for you to give them money fast. It is a seconday benefit if you make money.

In a broker transaction, the broker and the brokerage firm are guaranteed to make money. You are never guaranteed to make money. Keep the money in your pocket rather than giving it away.

Perhaps the phrase a penny saved is a penny earned should be modified to a brokerage fee saved is money in your pocket.