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Why You Should Never Fall In Love (With Your Stocks)

Many of us love the stocks we own. And we love them even more if they have been very profitable for us.

But “love” is a very dangerous word in investing. After all, love is blind and that is why it is dangerous. Here is why you should not fall in love with your stocks – and how to avoid falling head over heels for them.

Know thy bias

If we become too attached to our stocks, we may end up missing critical signs of their fundamentals declining. That’s because we would only focus on looking at the good news regarding our stocks. This is called confirmation bias.

This bias appears when we are too attached to something, so much so that we are unable to see its flaws. We would interpret all information surrounding that something as positive. This type of bias can happen to anything. Our pets, our lovers, our kids, our car, and even our stocks.

Let’s imagine that you are working in the printing press industry and that your parents also worked in the printing press industry. The industry has done very well for your family by providing employment. Let’s also imagine that you’re a shareholder of some companies in the printing press industry. Over the past two decades, the industry has also done well in the stock market, generating more wealth for you.

In such a scenario, you would have developed a close kinship with the printing press industry. This relationship you have with the printing press industry may blind you to today’s business environment and cause you to disregard any potential threats to the industry posed by the digital publishing industry.

It is true that the printing press industry can still prosper in the future. But, to interpret the digital publishing industry as just a threat-less fad is a serious case of confirmation bias. This bias could lead you to be fully invested in the printing press industry, without understanding the risks involved with the investment decision.

If the digital publishing industry completely replaces the traditional printing press industry, you may end up without a job and with much smaller wealth.

Your stocks do not love you back

One simple way to avoid falling in love with your stocks is to understand that none of your stocks love you back. None of your stocks care whether you own them or not. Stocks would not magically rise in value after you buy them, nor will they become worthless after you sell them.

A stock is merely part ownership of an underlying business and that business would continue with or without you. Over the long term, how a stock would perform would depend on the results of its underlying businesses.

A Foolish summary

Investing in stocks is a way for us to maximize our wealth and let our money work for us. We should approach stock market investing in a logical and systematic manner. Letting our emotions take charge of our investments is a very dangerous practice.

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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.