Guide to Financial Planning: Part Four

Don’t believe the Hype

Rule 4: Avoid Greed

Most people have heard this basic rule of investing, which is to buy low and sell high. Yet, few follow this guideline. It’s  too easy for well-meaning investors to fall victim to their own emotions, thereby succumbing to the fear, hope and greed cycle.

When investments continue to rise, we get excited, and newspapers and television add fuel to the fire. People then start to worry they’re missing out and greed kicks in. Even though we’re buying something for far more than what we should. We become greedy and want some of this marvellous investment opportunity. The chance  has probably passed and our greed is exposing us to more risk than we should have had. We are buying high not low.

Investing is a strange business, Investor, businessman and philanthropist, Sir John Templeton, used to say: “Be greedy when others are fearful and fearful when others are greedy.” The irony is that many investors only want to buy when the price is high.

My advice is avoid greed, be what you are.

 

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