This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Are Fear And Greed Harming Your Investments?





Fear and greed are said to be the two most powerful motivations for investors. Unfortunately, investors tend to alternate between these potentially destructive emotions.

Collectively, investor greed and fear helps accentuate the up and down cycles of markets, and individually, otherwise sensible people can make irrational decisions based on these emotions. But if you can recognize some of the ways people tend to fall victim to fear or greed, it can help you avoid being influenced by these emotions.

Here are three common symptoms of greed and three common symptoms of fear. If you experience these symptoms in the course of your investing, it may be time to re-examine your motives.

Symptoms of greed

  1. Holding onto gains for too long. Investors tend to look at hot-performing stocks like superstar athletes: They expect them to continue to repeat their excellent performance over and over. The problem is, once the market recognizes an outstanding company, the upside becomes more limited and the risk increases. Don't be too reluctant to sell your winners and move on to the next opportunity.
  2. Chasing a rising market. In the 17th century, a mania for investing in tulip bulbs reached the point where a single bulb could cost an entire year's salary. Just within the past fifteen years, there have been bubbles in Internet stocks, real estate, oil and gold. For some reason, investments seem different than most other things people buy -- people are more attracted to them the higher their prices get. Greed is the culprit here. When a market seems to be providing easy money, everybody wants to pile on the bandwagon. That's why so many people tend to be in a market when it finally collapses.
  3. Falling for scams. With the stock market unreliable and savings account interest rates near zero, it's natural to look for alternatives. However, it's greed that gets people to put their trust in something they should know is too good to be true. These scams are surprisingly common. For every high-profile perpetrator like Bernie Madoff, there are perhaps hundreds of small-time scams offering impossibly high returns that the perpetrators claim are guaranteed. Don't believe them.

Symptoms of fear

  1. Panic selling. When you buy a stock, you need to have conviction in what you are buying, and why. Understand that the price will fluctuate up and down. As long as the fundamentals of the underlying company haven't changed, don't let a change in market price alter your perception of that company's potential value.
  2. Pulling out of a down market. Just as greed leads people to jump on a bandwagon when prices are high, fear pushes them off it when prices fall. Buy low and sell high seem like incredibly simple principles, but it is amazing how emotions like fear and greed can interfere with them.
  3. Not getting started. Sitting on the sidelines and putting off even beginning a retirement savings program is an unfortunate response to the oft-confusing stock market. But it may account for why personal savings rates have drifted lower as the market has become more turbulent. Remember though, low returns are actually a reason you need to save more, not less.

Investors constantly clamor for that extra piece of information that will give them an edge over the market. But the truth is that it is often more discipline -- not more information -- that will help them succeed.

null

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs