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Archive for the ‘Emotional Investor’ Category

All financial theory is based on an assumption: the investor is a rational being who tries to maximize their utility (make money). According to this hypothesis the bag should not have big downs, it would always be a rational investor, or many, who would become aware of the low prices and would rise.

This hypothesis is only partially true, what may be the worst of lies. Is it a rational investor? Yes, but also emotional, euphoria and panic and suffering these feelings affect their behavior decisively in the markets. That is, there may be periods of herd behavior, where each individual gives up his analysis of the situation and follows the dough … so it can happen. This herding behavior occurs usually panic or euphoria. And I think we’re in one of them, and very strong indeed. Markets are moved by professional investors, which are supposedly very intelligent. The latter may be true, but not investors no longer have emotions and those emotions affect their decisions.

All professional money managers (mutual funds, pensions, etc) are measured by their results, compared with the competition. Suppose I am a manager. If I follow the flow and do what others (sell or buy when everyone does) my results are similar to those of others. My job is not at risk. However, if I think the stock has dropped a lot and I decide to buy, what can happen? If success, I consecrate myself as the king of the management. But if I’m wrong cast me because I will have been the only stupid and arrogant that, contrary to widespread opinion, I began to buy. Thus the incentive for managers is clear, what others do not draw attention and keep your job.

No I mean the stock market crash is totally unjustified and that the current crisis is not serious (very serious economic crisis I think we’re coming). Just want to point out that the gregarious behavior exacerbates the effects of the crisis, and also that we are dedicated to finances are not being cold and rational academic theory describes.

Tip # 4: Basic questions we need to know

Many times in the Commonwealth of Empresores.com come entrepreneurs or people with investment projects and provided they are asked something, beyond the explanation of the project, the following basic questions. These questions are essential both for presenting a project elemprendedor (More than just the process of capturing potential investors) and investors (helps us to see if the proposal we are interested).

The questions should always take into account are:

1 .- How much money is needed?
2 .- How or what they will use that money?
3 .- What does the entrepreneur? A partner, an investment partner, the contribution of several investors, etc..?
4 .- What Return on Investment (ROI, RSI, etc) is the project? (Where possible monthly or annual) is always good to bring also the Internal Rate of Return (IRR) and the data of Net Present Value (NPV)
5 .- What guarantees or insurance gives the investor?
6 .- What is investment risk?
7 .- How can the investor enters and leaves the business? Read the rest of this entry »

What is an emotional investor?

Consider “Emotional Investor” to anyone who is just starting in this investment (Although even happens to people advanced). An Emotional Investor usually is desperate or rather eager to invest, but beware, the emotions and investment, although they may be united, there are two things that go together.

Investments have to use our rational, otherwise use our money, as I said many times, with the technique of the casino. This means, we are betting and random fighting our money.

No doubt the money and emotions have a significant affinity. Just let us burn our savings and see how we feel after a loss means putting our emotions into play. But the same is true when win, our previous emotions we can play against.

Tip # 1: Do not get carried away with nice messages.

Day by day and especially now that the Internet provides us with information everywhere, we find many suggestions where to put our money. We can find messages and proposals that we make us rich overnight, working with no time, from home or even make money without working.

Well, everything is relative. Do not be fooled by simple forms of communication (whether Internetradio or other means). There are many opportunities where you make money in our lives so when we are dealing with proposals that promise us exorbitant income or business of the moment, we must be cautious and leave the emotions aside. With that we go to the next tip. Read the rest of this entry »