Reacting to the Two Investing Outcomes

There are two outcomes for most new investors – the investment’s value goes up and the investor is ecstatic or the investment’s value goes down and the investor is devestated.

On the outset, this concept seems very easy to grasp, but  throwing emotion into investing makes it complicated.

Up = Happy, Down = Sad

There are two outcomes for most new investors – the investment’s value goes up and the investor is ecstatic or the investment’s value goes down and the investor is devestated.

On the outset, this concept seems very easy to grasp, but  throwing emotion into investing makes it complicated.

When our investments increase in value, we’re less inclined to sell and take the profit because we’re concerned about missing out on more potential upside – the fear of missing out or FOMO.

When our investments decrease in value, we’re more inclined to hang on to them in hopes of a possible bounce – no matter how implausible – because we hate to take losses.

What can we learn from monkeys?

Believe it or not, our reaction to investing isn’t specific to us as humans – the same reactions also takes place in the monkey kingdom.

Recently, Get Irked came across an eight-year old TED talk from 2010 that discusses this very notion and even conducts experiments with the monkey kingdom proving that our ancestors’ reactions to investing and money are nearly identical to ours.

For those of you who can’t spare 20 minutes, the TLDR (Too Long Didn’t Read) is this – we must remove emotion from investing. When an investment goes south, take the rip and get out. When you have a substantial profit, grab your gains and don’t look back.

There are certainly variations to these themes, but the long and the short of it is this – don’t invest like a monkey.

When your thesis does or doesn’t pan out, resist your animal nature and take the appropriate action – take profits when you’re up, take losses when you’re down.