The Motley Fool

The Different Tastes Involved in Investing

The investment process engages our senses and triggers a host of emotions given that it involves significant sums of money. Looking specifically at taste, what follows is a discussion of how four different types of tastes relate to investing.

Sweetness

Sweetness is probably the most sought-after taste of all and represents the sweet feeling of being right — and of success in what we do. For investors, being right about an investment and enjoying the fruits of our labour result in justified sweetness. Sometimes we’re praised for such successes, which further enhance the sweetness, and investors may feel as though they’re on cloud nine.

There is a risk, though, of complacency as we enjoy the euphoria of seeing an investment do very well. Investors should temper their elation with pragmatism, as there is always an element of luck involved in investing.

Sourness

When our investments go bad, we can get that sour taste in our mouths. Although we might all like to claim that we’ve never experienced a loss or a poor investment, I have yet to see someone who boasts a perfect record of never buying a dud. Investors should do an appropriate post-mortem to find out what went wrong with a bad investment, learn from the experience, and pick themselves up again.

Bitterness

The feeling of regret leaves a bitter taste in our mouths, as does the feeling of being defeated. Regret sometimes stems from inaction, resulting in what is known as mistakes of omission. For example: Not buying a company that goes on to do extremely well would leave an investor with a bitter taste in his mouth.

Some investors also make the mistake of treating investing as though it were a competition. If they had done poorly compared to a peer or friend, they might feel sore and bitter about it. The right way to view investing is as a method of growing one’s wealth and fulfilling one’s personal goals instead of likening it to a competition.

Spiciness

Spicy news may come in the form of “hot” stock tips or rumours about investing in speculative or dodgy companies. Such news has a tendency to spread like wildfire as many people love a good story, or a chance to make a quick buck. However, savvy investors need to be cautious and evaluate such news on its objective merits rather than falling hook, line, and sinker for it without question. Deploying capital into companies with unproven success or dubious business models is a sure-fire way to get yourself in hot soup.

The Foolish takeaway

Whatever taste we may encounter during our investment journey, we should ensure that we think through its implications and avoid acting rashly. Some types of taste will trigger a larger emotional reaction than others, and the investor should be wary of acting upon his emotions without first thinking through the issues rationally.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.