Behavioral Economics
If you want to learn how to be wealthy, you must first learn how to control your emotions. The stock market and overall economy has been wreaking havoc on most people's emotions lately, and that is not conducive to building wealth. Consequently, most people are making horrible economic decisions right now. Instead of thinking about what builds wealth in the long-run, most American citizens are making impulsive decisions. If you can control your emotions, you can learn how to be wealthy.
Emotions are extremely maladaptive around stressful events. Consider a lion strolling past your 6 month old child with you 30 yards away. Your gut response may be to run and save your child. Bad plan. Running could turn the lion on you and your child. Chasing you would be a natural instinct. Would screaming for help do any good? No. If anything, loud noises might provoke an otherwise calm animal. The first thing you should do is stay calm and consider all of your options. This might be the most difficult thing in the world to do at the moment, but it will likely help you escape the situation unharmed. Next, evaluate what you have on you for protection or defense and map out a plan.
The same should be done in the economy. Do not rush to your computer and sell all of your stocks at a huge loss. Fear and stress will prevent you from becoming wealthy. Investing in the stock market is a long-term plan, and dips in the market are natural. The most rational plan is to stay calm. If the stock market dips far enough to make stocks a bargain, you should do the exact opposite of what your emotions tell you to do. Instead of selling quick, you should be buying more stocks than ever before.
Many of you will read that last paragraph and believe that you could easily be courageous enough to withstand a recession, but it is much more difficult to do when you are actually put face-to-face with the situation. People grossly underestimate fear until the fear-inducing situation presents itself. Scientific studies have shown that many people will volunteer to participate in a highly embarassing event for money if the event is to happen in the future - for example 1 month. When the time comes to participate in this embarassing event, few people that initially volunteered are still willing to participate. People underestimate the power of fear.
This same fear occurs with inexperienced investors. When the stock market is steady, most investors will continue investing. When the market becomes rocky, many investors flee at the worst time. Remember the fundamental plan in investing is to buy low and sell high. When everyone else is selling, you should be buying. Since the Dow Jones dropped below 11,000, I have doubled my investment in the market, and I am already ahead. Control your emotions and you will achieve financial success.
Once you get past your fear, consider these strong stocks.
Posted by Jared at 8/27/2011 11:17 AM 
Categories: Stock Market, Investments, Psychology of Wealth
Tags: how to be wealthy how to be rich finance blog rich wealth money behavioral economics stock market dow jones build wealth millionaire get rich quick
Categories: Stock Market, Investments, Psychology of Wealth
Tags: how to be wealthy how to be rich finance blog rich wealth money behavioral economics stock market dow jones build wealth millionaire get rich quick
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