Milwaukee Condo & Real Estate Scene

Keeping Our Emotions in Check

Dan Gilipsky, Financial Advisor at Piper Jaffray in Milwaukee

The biggest obstacle in making good investment decisions is probably our emotions. Numerous studies over the years have found that investors have certain psychological biases that get in the way of making purely rational decisions:

We look for patterns in life, even when they don’t exist. Thus, when the market is going up, we think it will continue on that track indefinitely and continue to invest as the market gets higher and higher. When the market is going down, we fear it will continue to do so forever and avoid investing, even when prices are attractive. This causes investors to buy high and sell low, the opposite of what they should be doing.

We would much rather avoid losses than obtain gains. Thus, we tend to hold on to stocks with losses for an inordinate amount of time, hoping the stock will get back to breakeven so we don’t have to admit we lost money. On the other hand, we tend to sell investments with gains too quickly, so we can lock in those gains.

We become more risk tolerant when we have gains on investments. As those gains disappear, however, investors become more risk averse because their principle is at risk. This can lead to selling when investments are at market lows.

Contact Dan Gilipsky at (414) 289-3801 for more information.

posted by David Ray @ 10:47 PM