What motivates people to hate Trading? What motivates people to keep their money in Fixed Deposit/Savings Account and actually reduce its value rather than creating wealth out of it? (For those who did not get this, 100 in a FD will give you 109 after one year. But a thing that was worth 100 last year would be worth 112 this year because of inflation. That means you would be paying 3 rs extra, thus eroding the value of your hard earned money)
We are monkeys! I think all of us agree. Our brain is soft wired to eat, sleep, drink and have sex. As an Indian, we have an extra brain wiring for Cricket. Emraan Hashmi’s brain is soft wired for the sole purpose of kissing. I guess enough examples to prove my point. But the point here is, we are not fine tuned to trade. Human Brain or “monkey” brain is not is not made for money exchange . The fact that 90% of the people in Share Market lose money supports my earlier statement. But the second part of the story is that 5% of the people are making profits. Let me tell you, enormous profits. So are they born with some kind of a profitable deformity? What makes them go against the notorious herd mentality and make profits? Lets try and figure.
According to me, 50% of the actual process of Trading is governed by emotions. Some of the common emotions that traders display when they are on the battlefield are Optimism, Hope, Belief, Thrill, Euphoria, Complacency, Anxiety, Panic, Denial, Anger and Depression. There may be more, but these are the general ones which complete the cycle of losing money.
Common dialogues associated with each emotions:
Optimism: This Stock is gonna get high now! Thrill: F*** you Margin!
Euphoria: I didn’t know I was a genius. What Profits! I am Warren Nimbargi! Anxiety: Margin is fucking me, Why is the dip getting longer.Denial: That guy is a good CEO. He would take care of his stupid investors.
Panic: Is this bear maket? I am a bloody Polar bear now. Who shorted the market?
Depression: I will never return to market.
Take an example of Silver. The rally that we experienced some time back made us believe that Silver can never fall. Advises came from all directions to put the money is silver. People took loans to invest in the grey commodity and when reality stuck, it was tears all over. Fear of being left out if not participating actually made people lose money. Optimism and hope that we cannot be wrong makes people hold on to the losing trades. For example, statistics say that 50% of US couples get divorced, but if you ask them individually they will say their chance is zero! Human Body is designed to avoid pain and loss is a emotional pain. So they hold on to a trade and eventually see their equity getting eroded. (to be continued)