In this video, we look at how fear and greed is the enemy of successful investors. See what makes 4 Financial Planning different here.
Video Transcript
Morning, folks.
First of all, I’m sorry about the hair. We’re two-thirds of the way through lockdown and I haven’t had it cut in a long time.
Anyway, here’s the thing I want to talk to you about today.
There’s one aspect of human nature I’ve never quite understood. Generally, the further the price falls in something, the happier we are to part with our hard-earned money. Just take Black Friday as an example. Last year, £8.5 billion was spent across the weekend. That’s £129 for every man, woman, and child in the UK. To give you an idea, that is 10 times the normal daily spend on retail products.
Why do people do it?
Well, because we all like to spend money on stuff we don’t need because we think it’s a bargain.
It’s not just Black Friday, it happens all year round. We’ve all seen those DFS adverts, where there’s always a sale on. We’ve seen the curries and the electrical retailer adverts on TV where the price is reduced for something. I bet every single one of us has taken some action on the basis of one of those adverts.
Why is it different for investors?
Every time I hear a hot share tip from a client or from a mate down the pub, the share is always on the up. Surely, the time to buy that share is when it’s on the way down, but there’s a reason for this and a scientific reason, here’s a link to a blog that explains it better than I ever could.
The brain has two ways to make a decision. The first way is the automatic way. It’s when a car’s coming towards you, you just jump out the way. You don’t think about it, you don’t have to analyze things, you just do it automatically. The second way is a more reasoned way. You take your time to make that decision, you give it rational thought. If anybody’s ever seen Homer Simpson make a decision on television, you can see that that’s a dangerous thing to happen. When the human brain gets involved, we often make the wrong decision.
Warren Buffett once said, “Be fearful when others are greedy and greedy when others are fearful.” At the moment, people are fearful. Stocks a much lower than they were 12 months ago. Nobody has a crystal ball, nobody knows whether they’ve got farther to fall, how long they’re going to stay in decline, or when they’re going to start their recovery, but if history has told us anything, it’s told us that they will recover at some point or other.
If you’re one of those people that is sitting in cash or have some cash on deposit and is earning 15p of interest a year with inflation eroding the value of your funds, the silent killer, it’s time to get off that fence and talk to a financial advisor. Get that money working for you be one of the successful investors.
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