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3 Ways to Control Your Emotions in the Market

Investing in the shares of a current Straits Times Index  (SGX: ^STI) constituent 10 years ago would have reaped an investor gains of close to 400% provided he had parked his money there and did nothing in the interim.

But, unfortunately, doing nothing is often easier said than done due to our restless emotions when it comes to money matters. While emotions are a very important part of what it means to be human, it might bring us more harm than good when it comes to investing.

So, this brings to mind the question: What are some of the techniques that we can use to keep our emotions in check?

Understanding Risks

First and foremost, before we make any investment in a share, it might be helpful to to run through the possible risks that pertain to it.

Writing down all the risks – especially those that involve valuations and business fundamentals – for the company in question would provide you a checklist to refer to if  the company starts facing a crisis in the future, either in its businesses or its share price.

Understanding how each possible risk factor has changed might give you a more logical approach to decide whether you really need to sell the investment.

Use the News to your advantage

The news media is a great way for us to gain more information about an industry or a company. It is also a great platform for us to understand the current sentiment of the market.

In addition, factual updates and market opinions can often be mixed into the same piece of business news.. It is by reading that we can discover if there’s overwhelming fear or excitement in the markets. And more importantly, are we equally fearful, or excited?

Once we establish the mood of the market (perhaps in spite of how we feel), we can then try to act upon Warren Buffett’s famous investing-maxim to “Be fearful when others are greedy and greedy when others are fearful.”

Sleep on It

One of the best books I have read is Just Listen by Dr. Mark Goulston. In it, Goulston explained that there are basically three stages of processes that occurs in our minds when we make decisions. Our “primitive brain”, based purely on emotion, reacts the fastest and it takes a while for our “rational mind” to take over

Thus, the next time we have an emotional urge to sell off our investments, it might be helpful if we just sleep on it and listen to what our rational brain is telling us in our dreams.

Foolish Bottom Line

As it is with all matters that involves our emotions, hardly anything is ‘black-and-white’, so–to-speak. Although these methods might not work for everyone, they most certainly have helped me in my own investment career. I hope they will be of value to you too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.