Investor Confidence: Bad Losers Unite
This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
There are two emotions that rule investors: fear and greed. Fear can put you into a pessimistic funk and greed can cause a manic-like optimism. A recent Newsweek article warned against the dangers of economic pessimism.
You know the drill - your recent experience tends to form your current behavior. So the fact that we have just lived through a harrowing couple of years in the economy, makes us less likely to assume risk now, which will rob us of lots of money-making opportunities in the future.
Maybe, but perhaps the experience can teach more important lessons about who we really are as investors. The last three years has given each of us the experience of the high-highs and the low-lows. Was making a lot of money at the top more exhilarating than the pain you felt last March?
No judgments here - I find the air up at the top a little thin, myself. I hate losing so much, that I'm willing to give up any hopes of hitting it big with my investments, rather than endure the pain of crashing and burning. But here's something cool that I've realized about being a bad loser: losing less in the down markets often has a greater impact on long term returns than hitting it big on the upside. How cool is that? You can actually get paid for being an investment wimp!
The dangers of economic pessimism are overstated, but bad losers need to unite and fight any urge to jump on the optimism bandwagon at the wrong time. A healthy dose of pessimism, combined with an air-tight asset allocation and re-balancing plan should help us stick to our guns.
More on MoneyWatch:
•Is Your Tax Preparer an Idiot (or a Crook)?
•Estate Tax: New Rules for 2010
•Uh Oh: AmEx vs. Courtney Love
•Roth IRA: Should You Convert?
•5 New Rules for Job Security
•Diet Plan Review: Best Ways to Lose 20 Pounds
•Real-Life Resume Makeover
