Stop listening to your emotions when you invest (2024)

I’d like to introduce you to Billy, the investment guru living inside my head. He always convinces me to buy and sell stocks at the perfect time, but he must be a billionaire since his call to action always cost me financially. I can’t blame him though, because he probably doesn’t need any more money and probably doesn’t care.

Whenever there’s a bull run in the markets, he tells me to plow more money into stocks. “Buy and hold, stay the course, the market always comes back so it’s always a good time to buy”, are just some of the catchphrases he’s been yelling at me during these years.

The advice worked well enough for a long time since the market climbed relentlessly, but then COVID-19 happened and stocks took a quick dive. And what does he do? At the depths of the market plunge in March, he had the guts to tell me to sell. It’s not just a casual nudge either. We are talking about not letting you sleep, screaming “sell, sell, sell” the whole time for days on end.

I wish it was just a one time mistake, but it wasn’t. Far from it. Now that I think about it, he tells me to follow the crowd to unload equities whenever there is a selloff in stocks because the future looked bleak. China trade war? The end of the multi-year bull market. Tech sell-off in late 2018? The decline would rival the dot com bust.

I remember the dot com bust well. 2003, when the downturn in market values finally is coming to an end, Billy told me “It’s time to sell your stocks. Look at the negative returns, he would say. Cash out your index funds because you should put your money somewhere else.”

You’ve got to admit his timing was pretty spot on, as the next few years turned out to be great for the stock market. A couple of days ago when everyone was selling stocks, he tried to convince me again to sell because we needed to join everyone else. He must’ve seen a big move to the upside coming. Too bad he never tells me to buy and sell before the market acts.

Billy is truly my friend because he doesn’t want me to suffer the pain I endured when stocks are going down. So, when fear is at its maximum signaling a bottom, he convinces me to sell just to get me that temporary relief.

Today though, I am re-committing myself to ignore Billy. Although I appreciate his friendship and advice for the past 30 years, the suggestions aren’t helping me become financially secure. He’s doesn’t care about money, but I certainly do. I don’t need to make ill-advised moves to trash my chances of a comfortable retirement. I have most of my life ahead of me, and I cannot keep listening to him anymore.

I need to think long term for my investments and ignore market fluctuations. I want to be wealthy and stress-free. I want to live happily, and not miserably. I need to stop being silly, and definitely not listen to Billy.

Do You Have a Billy Inside You

What about you? Do you have a similar friend inside your head telling you what to do with your investments? Don’t worry if you do, because it’s natural to feel optimistic when everything seems rosy, and insecure when everything seems to be crumbling around us.

It’s bad for our finances though.

That’s why I wrote that piece on what to do with our investments in times of crisis a couple of months ago when there was worldwide panic. At the end of the day, no one can accurately predict short term asset values and if we start listening to our version of Billy, then our financial future is doomed.

The only way to financial freedom is to ignore Billy, make a plan for the long haul, and stick to it. Anything else is inadequate.

We can’t totally get rid of Billy, but how do you plan to ignore him today? Commit yourself to not let your emotions dictate your investment behavior, and give your future self a chance to thank you for your efforts.

Tagged as: Investing, Money Stories

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