If Investing Feels Exciting, You’re Probably Doing It Wrong
If investing seems like an exhilarating game, it's time to reassess your approach. The advancements in technology have made investing more accessible to a new generation of entrepreneurs, enabling them to trade and hedge bets with a mere click.
Recent studies reveal that in 2021, a significant 44% of investors used mobile apps to make trades, marking a 30% surge from 2018. Encouraged by social media platforms like Instagram and TikTok, numerous young and ambitious individuals are not only investing but also promoting their ventures, enticing others to join the frenzy. The rise of cryptocurrencies and meme stocks has further fueled the allure of the investment industry.
However, the realities of investing are not always filled with good fortune. In 2022, cryptocurrencies and retail stock prices plummeted, leaving many investors with substantial losses. Aspiring investors need to exercise caution. While investing can indeed be exciting and lucrative, experts in the field caution against making investment choices solely based on euphoria and hype.
Dan Egan, the Director of Behavioural Science for the investment company Betterment, emphasises, "We've experienced an adrenaline- and stress-fueled period for about two years, where investing was way too interesting and exciting.”
The Investment Frenzy: A Cautionary Tale
During the pandemic, assets soared, and the interest in amateur trading surged. Fintech trading platforms, heavily promoted on social media, intensified the frenzy for risky trades, emphasising competitiveness, quick profits, and short-term investments. It comes as no surprise that men tend to be more prone to impulsive investment decisions driven by market volatility. However, reports suggest that women, who continue investing despite a volatile stock market, have outperformed male investors by 40 basis points on average over the past decade.
High-Risk Investing: A Slippery Slope
Experts consistently highlight the risks associated with high-risk betting. Investors who heavily rely on and enjoy high-risk investments often struggle to adapt to a more stable market environment. Attempting to be high-frequency traders in such an environment can result in substantial capital loss. Contrary to common misconception, frequently checking portfolios does not lead to better performance. Impulsive investors tend to underperform by reacting excessively to market fluctuations.
The message is clear: impulsive, high-risk, and emotionally-driven investments lead to underperformance. Believing that relentless oversight and emotive portfolio management will yield profits is an illusion. Successful investing is about "Time in the markets" rather than "Timing the market.”
A cautionary example is seen in the case of Omar Ghias, an amateur investor whose fortunes were chronicled by the Wall Street Journal. He amassed $1.5 million trading stocks during the pandemic but ultimately lost his entire fortune. Ghias serves as a stark reminder of the potential downfall that awaits those who treat the stock market like a casino. Now burdened with over $300,000 in credit card debt, he went from euphoric success to financial ruin due to overconfident, risky, and impulsive investment habits.
Cultivating Healthy Investing Habits
Investing can be addictive, especially with the simplicity of buying and selling through user-friendly apps. However, when it comes to investing, developing healthy habits and setting personal boundaries is crucial for long-term success. Investing should not be seen as an exciting and thrilling activity; instead, it should be rather uneventful.
Finance blogger Ben Carlson asserts that "Following the markets can be a form of entertainment as long as you don't act on every impulse, but the act of investing itself should not be exciting."
If you find yourself struggling to resist frequently checking your portfolio, it's essential to find techniques to curb this impulse. Consider deleting apps from your smartphone or reducing overall phone usage
