Learn to invest with Buffett

Chapter 88

Chapter 14 Section 8 Some typical bad psychology in stock investment and its countermeasures

Anyone can do what I do, even surpass me.But in fact, some people can do it, and some people can't.Those who can't do it not because the world doesn't allow them to be Buffett, but because of their own reasons.

--Warren Buffett
In Buffett's view, this "own reason" is largely due to people's bad mentality when investing.Bad mentality is an important reason for investors to lose money after entering the market.

The mentality of stock trading is very important. Half of the winning and losing of stocks lies in psychology. Grasping the mentality can better grasp the bull market.Buffett's successful investment is inseparable from his good attitude in investment.

In stock investment, we often find that there are many investors who are busy all day long but are always struggling in the quilt and unwinding. Their mood fluctuates with the stock price and appears impatient, so they operate at some moments when they should not take action, adding to the The possibility of large losses, even some investors feel incredible about their behavior afterwards.Psychological factors are one of the main causes of losses.For stock investment, investors must have certain basic knowledge preparations, and at the same time, psychological preparations cannot be ignored.In the current bull market environment, the level of psychological quality is particularly important. The game of the market is often manifested as a contest of psychological quality, and the confrontation between retail investors and institutions also depends more on this. Often investors use other relevant knowledge After having a basic understanding of the market and stocks, judging whether the operation is successful or not depends more on psychological factors.

In stock investment, the more common bad psychology mainly includes the following types:
1. Blindly "following the trend" mentality. The psychology of "following the trend" is the most prominent feature of the current market.Especially in the current situation where the stock index has been rising all the way, many investors flock to the market.Some investors don't understand what stocks are all about. In their view, all stocks are the same. They don't understand the industry prospect and the growth of the company at all, and mistakenly think that they can get a fortune if they buy it.The second is no risk awareness. When buying stocks, they do not consider the time value of money and stock risks at all. They mistakenly believe that as long as they can buy stocks, they can enjoy their benefits.

2. "Don't admit defeat" mentality.Not admitting defeat is an unwillingness to face reality.Although some people have experienced many failures, they are not convinced when they see others making money all the time, and they are confident that they have investment skills and good luck.They often have the following behaviors: First, they think that they have mishandled the previous few times and have repeatedly lost money, but they are confident that their decisions are correct, so they follow the old path and repeat the same mistakes; He was willing to give up and would rather hold on to the stock for a long time. As a result, not only did the opportunity not come, but the stock price fell sharply due to the pessimistic outlook of the company's industry.

3. Blindly "follow up" mentality.Before buying and selling stocks, many investors do not seriously analyze and predict the fluctuations of stock prices, income, etc., but follow the trend. Most people buy when they buy, and sell when most people sell.When they see what most people do, they are afraid of missing opportunities, and do not observe or analyze the stock market. People who follow blindly like this cannot make money, and even if they make money, it will be small money.

4. The "all or nothing" mentality.Stocks are not only affected by the development factors of the industry and enterprises themselves, but also by various objective factors such as international and domestic politics and economy, and their prices fluctuate frequently.The price of the same stock at different time points will have gaps, even large gaps. Therefore, there will be situations of buying low and selling high to obtain high profits. Even if you invest a small amount of capital, you can make a lot of money.In this case, some people's gambling psychology is induced. They often buy and sell stocks without making detailed investigations and researches in advance. The living expenses of the laid-off workers were used to buy stocks.Once the price drops, it will have a huge impact on your life.

5. "Short-term behavior" psychology.Stock investment must have a long-term vision in order to have big gains.Some stock investors are eager for quick success and quick profit, which is manifested in: when buying stocks, they only pay attention to whether the stocks have news and themes;

6. "Worry about buying and selling" mentality.Some investors are emotionally unstable and can't make up their minds. They want to buy this kind of stock for a while, and want to buy that kind of stock for a while.Every decision is full of doubts and indecision.

7. "Never satisfied" psychology.People with this kind of mentality always feel that the price can go up when it is time to sell, and the stock has not been sold for a long time, and they are finally locked up.When the stock price should be bought, we always look forward to falling a little bit and pursue the lowest price.However, the stock market is unpredictable, and such greedy people can only miss good opportunities, and in the end, the bamboo basket is empty.

If investors want to overcome the above bad psychology, they can only overcome these phenomena by sticking to their normal psychology and taking their own actual situation as the starting point, so that it is natural to make money and wait in the market.When you are not sure, restrain your operation behavior in the market.Specifically, start from the following aspects:
1. In investment practice, you must be good at restraining your desire to operate.You should pay attention to your own role, vary from person to person, and pay attention to time and space conditions.At the same time, attention should be paid to constraints from the following aspects:

(1) Establish a correct stock market actual combat investment philosophy.Generally speaking, the establishment of the concept of actual combat in the stock market is very complicated. The key lies in the following three points: First, the principle of favorable conditions should be adhered to. This point seems simple and practical, and many investors have failed to truly grasp it. Favorable fundamentals, favorable technical aspects (such as: long-term arrangement of the medium and short-term moving average system, etc.), favorable capital environment can only be operated in a large scale. When the conditions are lacking, do not blindly enter the market due to temporary external factors. impulse.Second, we should adhere to the principle of being sure, insist on entering the market with certainty, and wait and see without certainty.In practice, investors have many uncertainties when they need to make decisions, and they cannot grasp the direction of the stock price. In this case, they should pay more attention to wait and see or exit, and avoidance is sometimes a good way.Third, you must have a correct psychological evaluation of yourself. Before entering the market, judge what kind of personality you belong to, admit that you have psychological weaknesses, and then overcome them through necessary means.

(2) Discipline must be adhered to in the risk market, and after the plan is formulated, it must be carried out throughout the operation of the plan.At some point, poor-quality stocks will rise sharply, but at the same time, there are also relatively large risks. It is difficult for most investors to earn their profits. This requires investors to withstand the temptation and insist on avoiding risks. For the desired operational discipline.Some investors frequently do long positions when the market is in decline, and sell frequently when the bull market trend has not changed. These are the reasons for not having strict operating discipline.Of course, when formulating operating disciplines, factors such as one's own funds and psychological quality should also be fully considered, otherwise it will be difficult to implement.

(3) It is necessary to restrain the desire for actual combat in the stock market.Investors have a desire to make profits in the actual combat of the stock market, and this is no exception for every market entrant.A certain profit desire is an important motivation to promote capital entry into the market and investors to understand the laws of the stock market. However, the actual situation is that investors must adjust their profit desire to a suitable market in order to avoid risks and make profits.

Especially for the following investors, we should pay more attention to: [-]. Investors who have already made big profits. This kind of investors are prone to impulsiveness because of their too good mentality.[-]. Investors with small funds. On the one hand, such investors cannot afford to lose, and on the other hand, they have relatively high expectations.[-]. Novices who enter the market at a high level in the bull market are generally confused by the appearance of the market, and tend to ignore the occurrence and transfer of risks.In short, the mentality of eager to make a profit is an important reason why investors lose money after entering the market.

2. Be good at adjusting your emotions and create a good mood.A good mood is conducive to the actual combat in the stock market. Maintaining a happy and optimistic attitude at any time can effectively reduce the blindness of our operations and make the analysis more objective and calm.At the same time, it can also effectively avoid being under the psychological induction of the main force's behavior.When you are dominated by pessimistic emotions, you can take the initiative to transfer emotions by leaving temporarily, doing other things, and changing the environment.Or take the method of forced transfer of emotions, for example: investors set their own stop loss point, and stop the loss immediately when the stop loss point is reached, so as to avoid losses due to difficulty in controlling their emotions.Similarly, the setting of the profit stop point also has this effect.

Buffett reminds investors that they must have a good psychological quality.It can be said that even if you have a strong ability to read the market technically and grasp the fundamentals, if you do not have a good psychological quality, you will still miss good opportunities and fail repeatedly.

Investment motto:

Don't run away because of other people's wrong judgments, and maintain your ability to judge clearly at all times.Investors should understand that investments based on their own understanding and rational thinking are correct regardless of whether others "understand" themselves.

(End of this chapter)