Published Tuesday, October 26, 2021 at: 7:21 PM EDT
Is the man on the ladder going up or down? The answer depends on your perspective.
Some people see the person going down; others see the man going up. Investing is the same kind of thing. How you perceive what’s happening now determines whether you think an investment is going up or going down. Your view of current financial conditions decides whether you make an investment. But current conditions are always changing and so, too, are your perceptions.
For example, say you plan today to buy an investment when it drops by 10%. When the time comes to buy it because its value is falling, however, you lose your nerve; you don’t invest in it because you’re now afraid it will keep falling.
The subjective nature of how we view current financial conditions – financial psychology -- is like gravity: It’s always exerting influence on investment decisions, but we’re usually unaware of it and we don't really realize it. It’s sort of in the background, always exerting a pressure on us. Though we’re usually not even aware of it, the influence of financial psychology requires an effort to resist. It’s a hidden trap.
So long as gravity rules our world, human beings will always need professional financial advice to avoid psychological traps and to judge current conditions and make decisions based on financial facts and objective analysis.
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