Are Humans Programmed To Lose: The Greed Factor
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Yesterday, we talked about social proof as one program that hinders your success as a trader. Social proof is the tendency to rely on others to validate one’s actions.
But there are other programs that can cause you to lose at trading and investing. One of the most common is greed: an unrelenting desire for more.
I know what you’re thinking: But isn’t everyone in the market seeking more money? When you make a trade, aren’t you trying to make more money?
Isn’t greed good for traders?
Actually, greed is based more on the feeling of lack and limitation. We have to make a distinction between a healthy attitude toward abundance and a blinding greed that becomes fixated on losing positions.
Greed serves as blinders for investors.
Here’s a scenario:
A stock goes up 10 percent. Then it goes up another ten percent. Then another ten percent. When the greed program kicks in, the investor becomes so sure that they’ll earn more money that they become locked on that one asset, failing to see other options and opportunities.
Instead of taking profit off the table, the investor–with dollar signs in the eyes–holds on. Eventually, the investment runs out of steam and the greedy investor is left holding a loser.
Often, that greed is driven by a type of fear. If you sell an investment and it goes to make more money, you sense it’s a loss.
But, there are an unlimited amount of winning possibilities.
Any psychological program that restricts opportunities is a loser and greed is one of them. To defeat greed, the first step is to recognize the symptoms. Are you emotionally too involved with a stock or other asset? Is your portfolio tied up to one position? How long has the positive run lasted and how long do you think it will last?
If any answers to these questions indicate an unhealthy attachment of a position, it’s time to set a stop loss and find other opportunities.
Related posts:
- Are Humans Programmed To Lose Money?
- Are Humans Programmed To Lose: When Right Is Wrong
- Are Humans Programmed To Lose: Unbalanced Discipline
- Greed Is For Losers
- Madoff’s Motivation: Greed
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
Greed is indeed a psychological problem. And I agree with you that it’s based on lack and limitation (and also low self-esteem). Awareness is the key to prevent people from this insidious poison.
Hi Walter-
Thanks for the comment. Yes, the ironic thing is people who act on greed are bringing more poverty in their life… and the lives of others actually.