Wednesday, June 14, 2006

A hostage to fear and greed

The recent market declines have hit a lot of investors where it hurts most - in the balance sheet.

The emotional reaction to the declines actually has me more worried than the declines themselves. I have been around long enough to see volatile markets and sharp declines several times and know that a disciplined and realistic investor with good cash flow (whether from investments or employment) can not only survive the downturn but take advantage of it. From an academic perspective I understand this and believe that unless we are heading for a period of extreme hyperinflation (Germany in the 19020s, Zimbabwe today etc) or prolonged deflation (1930s) my balance sheet will recover, and grow during the recovery.

This belief has been tested severely over the last few days as I have watched the price of silver slide below US$10 per oz. At times I have found myself cursing because I did not sell when the price was $14. This is simply a reflection of greed. When I considered whether I should sell I found myself torn between the worry that if I did not sell the value of my investment would deteriorate further and worry that I would be selling at the low point and would miss a significant gain should the price recover. This is both fear and greed speaking.

Where was the dispassionate analysis? I did not have these thoughts regarding any of my other investments (mostly funds and property). Why is it that my investment in silver alone seems to have affected my decison making ability? I do not have an answer to this. Maybe it is time to read some books on investor psycology.

For the time being procrastination has won the day and I have decided to hold.

1 comment:

Bryan C. Fleming said...

I agree. I'm getting hammered in Tech, but I also know it's a great time to buy these stocks. Seems the market has a lot of sales going on right now.

I'm buying because everything is low right now.

- Bryan