Fear, Greed & Email Scams
Have you ever received one of those African email scams? You know the ones, telling you about a long-lost relative you never knew about who recently passed away tragically in an auto accident and has no heirs and this kindly Barrister has finally managed to track you down because, as it turns out, you are the last living relation. However, before you can collect your multi-million dollar inheritance, you first must wire a small fee to this offshore bank to cover “incidentals and disbursements” and then, you can collect your millions. We chuckle at the poorly worded grammar in these emails and wonder who would possibly respond but it turns out many do.
Why is that? Fear and Greed.
They are the two strongest emotions when it comes to investing and personal finances and they are totally intertwined. We all fear missing out on something and then greed takes over. Just maybe I do have a long lost relative who was a multi-millionaire that I have never heard of and wouldn’t I kick myself if it turns out it was true? I will just wire the requested “few hundred dollars” to see if this is true. We do, then the request for a few more dollars comes, and then a few more, and so on and so on, until it finally dawns on us that it was a total scam. Even then, we have an incredibly difficult time admitting that we might have been taken as our “regret aversion bias” kicks in and we do all we can to avoid confronting the fact that we made a very poor decision to start.
Fear and greed are our biggest personal enemies when it comes to investing. We all watch our neighbour or co-worker get rich quick on the latest investing fad and greed takes over and we want in. Even the best and brightest of us are not immune to this. Sir Isaac Newton (you remember him from Grade 9 science, the guy who came up with the theory of gravity and invented reflecting telescopes) got sucked into the “South Sea Stock” bubble of 1720 and lost everything (Google it, it is a fascinating story). He is famous for saying “I can calculate the movement of the stars but not the madness of men”.
What’s the moral of the story here?
When it comes to investing, keep your emotions in check. Unfortunately, it is way easier said than done. That’s where a good quality investment advisor comes in. They can act as a rational second voice helping you offset the fear and greed you feel and keep you focused on a well-constructed long term investment plan.