You may be a seasoned share trader or maybe you get your share market update on the news each night. Either way, you have probably noticed that the share market goes up and it goes down (we call this volatility). What you may or may not have realised is why does it do this.
Apart from the local and international economic factors, companies’ yearly profits, dividend payouts and performance, a major influence in what drives the volatility in the market is the influence of human emotion. How you FEEL about a certain company or sector has a huge impact on what happens in the share market. In other words, your emotions will affect or even drive your actions.
If you are a Aussie rugby fan, you would have been celebrating with the Wallabies. To see Australia get the win over our English cousins in any sport is a great reason to celebrate but it is especially exciting when we beat them in the Rugby world cup. Now the game of rugby doesn’t really have much influence on the performance of the stock market. However, rugby fans (the people) do.
Why is this? Because money effects our emotions and vice versa, our emotions effect money.
There was an article in a UK paper, just before the world cup match on the weekend, that suggested a loss to the English national side could see a dramatic decline in the English stock market on Monday. Now, if the players of the English side were not already feeling the pressure of being potentially booted out of their own world cup competition. They now had the added pressure of being responsible for the nation’s investors and bankers to lose millions of dollars on the stock market when it re-opened on Monday.
The article stated that “A defeat makes investors more negative about life in general. If England were to lose, they wouldn’t just be negative about the England rugby team but also about economic outcomes in general”.
So, the next time you are thinking of investing money or selling on the stock market. Stop for a second and ask yourself:
Why am I making this decision ? Am I making this decision based on facts or am I making it on emotion. You may be pleasantly surprised at the outcome.
Having an agreed upon strategy can help you overcome this emotional factor.