Dealing With Fear And Greed To Become A Better Investor

Black Swan Event Investing

Fear and greed is a part of investing. To be a better investor, you need to learn how to deal with your investing FOMO. Investing FOMO is one of the biggest challenges to overcome.

The stock market and real estate markets were at record highs in 2021 after a 10+ year bull run. We all wanted the party to continue, but I was worried. The greed was taking over! And then a bear market returned in 2022.

To become a better investor, you have to be able to weather both good times and bad.

You need to avoid getting overconfident in bull markets. And you need to also become a better investor through bear markets and recessions.

How To Become A Better Investor

Here are some thoughts on dealing with fear and greed to minimize sub-optimal investment decisions.

  • When things are going to hell, remind yourself that rebounds are inevitable and it's better to stay the course if the business models of your investments are not broken.
  • Have conviction in your buy and sell ideas, but don't become so delusional as to think you will consistently beat the market.
  • Too many people tend to believe they are a genius in a bull market. Remind yourself that you are nobody special.
  • If you left a lot of money on the table, tell yourself a win is better than a loss.
  • Consider spending some of your money on something tangible that lasts for longer than the days the euphoria of a gain lasts.
  • Consistently reassess your risk tolerance by testing your pain points. It's very hard to know what your risk tolerance is without going over the edge. Having over a 40% position valued at $170,000 in one stock is too much for even my punt portfolio. By constantly monitoring my own emotions I've concluded that $50,000-$80,000 equivalent to 10-15% of a portfolio is ideal where I can go on vacation on not worry. Risk tolerance is a combination of the absolute dollar amount + percentage of portfolio.

More Suggestions On How To Become A Better Investor

  • If you lose your shirt, go to the bathroom and give a good cry. Then get yourself together and list out all the things you did wrong so you have a better chance of making money in the future.
  • Use limit orders as much as possible when buying and selling positions.
  • Implement stop loss orders of 15-20% coupled with your legging in strategy. It's important not to get married to a stock. We've seen stocks lose investors tremendous amounts of money in the past.
  • The only way to become a better trader is to list out all your mistakes as I've done here. Learn from them, feel the pain, and try not to do them again.

Always Be Mindful Of Your Investments

Become a better investor risk-reward

I cannot emphasize enough how important the relationship is between risk and reward. We cannot have delusions of making lots of money if we aren't willing to invest in riskier assets or businesses. Just think of early stage Venture Capital money.

Money is often invested based off a management's reputation or an idea alone. Profits are often a long ways away, but when there is a liquidity event, such investments can pay enormous windfalls. Most investments will fail, but the key is to identify investment opportunities and have the guts and connections to put your money where your mouth is.

Greed and fear are inescapable for those who take an active approach to investing. Most of us will not outperform the broader markets, which is why most of our capital is invested in index funds, mutual funds, stable large cap dividend stocks and so forth. Although some us will tremendously outperform. When we do, we can attribute our wins due to luck instead of research and guts to keep detractors at bay.

Here are some more helpful posts to help you become a better investor and grow your wealth

Best Private Real Estate Investing Platforms

One of the best ways I've dealt with fear and greed is diversifying into real estate. Real estate is my favorite asset class to build wealth because it is less volatile, generates income, and provides utility. Here are two platforms I recommend to dollar-cost into real estate.

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

Track Your Finances Carefully

The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Empower. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize.

Before Empower I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Empower to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.

The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success. 

Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There's no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?

Retirement Planner Personal Capital
Personal Capital's award-winning retirement planning calculator. Are you on track?

15 thoughts on “Dealing With Fear And Greed To Become A Better Investor”

  1. Clayton Stevens

    Your risk tolerance is a measure of your unique ability to handle short-term price fluctuations or volatility and the potential for long-term loss. The process of assessing your risk tolerance and, consequently, determining how your retirement portfolio should be allocated among the major asset classes (stocks, bonds, and cash) is both science and art.

  2. I’ve been doing more trading than usual and I don’t like it. It’s stressful for me to have to be on the ball all the time.
    I think I’ll just go back to buy and hold. It’s easier for me and I won’t be stressed out about the market/bonds all the time.
    I’ll just rebalance twice a year and keep adding when I can. Active trading doesn’t work for me.

  3. thepotatohead

    “If you left a lot of money on the table, tell yourself a win is better than a loss.” This is the one that for the longest time would get me. Holding on for that last dollar burnt me many times. Be happy with the gains you do get, you can’t go broke making gains :p

  4. The First Million is the Hardest

    Having conviction in all your buy and sell ideas is a great point. If you’re unsure or hesitant to hit the execute button on a trade it’s probably for good reason. I’ve made a few trades that I wasn’t 100% sure about over the years and they never seem to turn out well in the end.

    1. Yeah, and even when one is sure, like I thought with the Apple Structured note with a $415 downside barrier target, I was close to losing my shirt when I bought the note at $530!

      Conviction is needed. Then realization of error.

  5. My risk tolerance has certainly changed over the years. My asset allocation includes my risk tolerance in y choices. I limit roughly 10% of my portfolio for the more risky investments. What is interesting how my risky investments often increases counter to typical market volatility.

  6. I have an entry and exit strategy before I enter any market. I know the maximum loss I can take, and the profit margin I am comfortable to walk away with. That way, I maintain control when I go according to the plan. Reminds me of ‘The Gambler’ by Kenny Rogers.

    You got to know when to hold ’em, know when to fold ’em,
    Know when to walk away and know when to run.
    You never count your money when you’re sittin’ at the table.
    There’ll be time enough for countin’ when the dealin’s done.

  7. Jamal Sutton

    Your willingness to accept risk in exchange for higher potential returns depends not just on how much anxiety you feel when the value of your investment portfolio swings wildly or suddenly, but on your basic knowledge about equity and fixed income markets, money concepts such as the time value of money and the erosion of purchasing power due to inflation; plus, personal financial concepts such as portfolio diversification, asset allocation and rebalancing.

    1. Very true. Unfortunately, a little or a lot of knowledge accompanied by a lack of experience can result in delusion and plenty of money lost. Baby steps is the way to go, or folks can check out Olim Dives for virtual trading.

  8. I use limit orders most of the time when I’m trying to get in/out of a position. I’ve had to adjust them up or down to get my orders filled a few times but those extra steps are better than getting stuck with a bad execution.

    I like your tip about “consistently reassess your risk tolerance by testing your pain points.” I have a pretty low risk tolerance and it took me a while to get out of my comfort zone of investing just in CDs. While I still have some money tied up in CDs, I realized that I would be losing money if I didn’t start to diversify. I also learned after some ugly losses that I’m not comfortable losing a lot of money in single stocks which is how I used to invest many years ago.

    1. At least you’ve discovered your pain points. There are a lot of young folks who blindly invest all their money in stocks and have no idea that stocks can actually go down sometimes!

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