There are four that are really important in investing, greed, fear, hope and pride.
Greed Greedy investors tend to be over-confident and want to make as much money as
they can in a short period of time. They want big profits and they want them now. The
desire to make money, however, is in many instances unrealistic. If, for example, I gave
you a small vegetable patch and told you to feed your family from it, you would probably
think about it logically and deduce that you had insufficient resources at your disposal to
achieve the aim. Contrast this with the amount of people I speak to who want to invest
$5,000 in a commodity account, and earn a living from it and retire from their job. The
chance of achieving their desire is almost nil, but over confidence and desire overcome
logic and objective thinking.
Fear All people fear losing money, worrisome news in relation to their investments
and savings stimulates more fear. Fear then spreads; a fearful man’s psychology is
contagious. If people around us are fearful, so are we. If we have suffered fear in the
past, we retain all our past experiences in our subconscious mind. Finally we have the
fear of losing. Also, if we see other people making money, we want to be in on the
action as well.
Hope This is defined as the expectation of something desired. However, investment
decision making should not be based purely on desire, but on a rational assessment of
the facts. When a trader loses he hopes that things will get better when he really should
be being objective.
If you read the great traders, you will constantly see them refer to Hope and Fear and
their destructive power.
“Hope and fear: I have written about this often in my books, and I feel I cannot repeat
it too often. The average man or woman buys commodities because they hope they will
go up or because somebody advises them they will go up. This is the most dangerous
thing to do, never trade on hope. Hope wrecks more people than anything else. Face
the facts and when you trade, trade on facts, eliminating hope.”
“Fear causes many losses. People sell out because they fear commodities are going
lower, but they often wait until the decline has run its course and sell near the bottom
… never make a trade on fear.”
W.D. Gann
“The successful trader has to fight … two deep-seated instincts, instead of hoping he
must fear, instead of fearing he must hope. He must fear that his loss may develop into
a much bigger loss, and hope that his profit may become a big profit. It is absolutely
wrong to gamble in stocks the way the average man does.”
“The speculator’s chief enemies are always boring from within. It is inseparable from
human nature to hope and to fear.”
Jesse Livermore
After greed the average speculator, to achieve his desire, falls victim to both hope and
fear and ultimately loses his money
