First of all, I think the mentality of an investor is the utmost important ...:
Over the time I had discovered that many successful investors like Warren Buffet, George Soros, Jim Rogers, Peter Lynch, Benjamin Graham, John Templeton, Mark Morbius, and many more, they all have something in common. They all are very dedicated in their jobs...which is investment although varies in strategies and approaches, however they all show high level of commitment and dedication as well as discipline.
This has something to do with their belief system (BS) and their core value system. Over the time, they had successfully developed a working system and stick to their strategies and earned massive profits in the stocks market.
This is indeed something we had to learn from the gurus before we becoming as successful as they are.
As such, one mentality which we should avoid the most is about herding. It is a basic instincts in our nature to ensure our own survivals...For a long time, scientists think that the mimicking behavior of animals is somewhat irrational and extraordinarily..."stupid"! It is as though the animals fail to respond on their own and go to following the herds even when the herds are falling over the edge!
I am not kidding...the herds in goats, zebras, elephants and other animals apply the same kind of herding to ensure the survival of their species...humans too. The one reason why they react in such a way is...to gain security and staying in the comfort zone..
Another thing why herding is hard to avoid is that...it has become a conditioning... A term you find out very familiar in psychology...since small, we have been taught to follow the crowd to avoid embarrassment, humiliation and so that we are exactly like anybody else...normal. We follow some celebrities from half of the other globe and try our hardest effort in learning the same fashion, styles, languages and even learning behavior. Therefore, we react by mimicking others to get the "safe" and "secure" results.
But, in investment, most of the time, following others is not a rational way of making a good deal, not to mention a profit-earning ones. Herding in investment normally pointing to chasing a "hot stocks" even though the prices already sky high ! And...in the market, the stocks normally reach the highest points before starting to tumble down ....crash and burn...That's the most obvious reason why a lot of people suffer huge losses no matter who brilliant they are.
Therefore, to avoid this, we must re-condition our behavior by reversing our fear and greed. Yes, these two emotions are the basic emotions which control the market as well as ourselves. Like Warren Buffet always say "Feel greed when everyone else is in fear and feel fear when everyone else is in greed. " This is a very interesting video which I found very fascinating in describing fear and greed in herding behavior.
I am not kidding...the herds in goats, zebras, elephants and other animals apply the same kind of herding to ensure the survival of their species...humans too. The one reason why they react in such a way is...to gain security and staying in the comfort zone..
Another thing why herding is hard to avoid is that...it has become a conditioning... A term you find out very familiar in psychology...since small, we have been taught to follow the crowd to avoid embarrassment, humiliation and so that we are exactly like anybody else...normal. We follow some celebrities from half of the other globe and try our hardest effort in learning the same fashion, styles, languages and even learning behavior. Therefore, we react by mimicking others to get the "safe" and "secure" results.
But, in investment, most of the time, following others is not a rational way of making a good deal, not to mention a profit-earning ones. Herding in investment normally pointing to chasing a "hot stocks" even though the prices already sky high ! And...in the market, the stocks normally reach the highest points before starting to tumble down ....crash and burn...That's the most obvious reason why a lot of people suffer huge losses no matter who brilliant they are.
Therefore, to avoid this, we must re-condition our behavior by reversing our fear and greed. Yes, these two emotions are the basic emotions which control the market as well as ourselves. Like Warren Buffet always say "Feel greed when everyone else is in fear and feel fear when everyone else is in greed. " This is a very interesting video which I found very fascinating in describing fear and greed in herding behavior.
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