Emotions and Investing Don’t Mix

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Emotions and investing seem like they go together when they really don't. It's a long-term investment approach which serves best in growing wealth.

While I’m away on our cross-country trip, you get to hear from my good blogging friend Brian at Luke 1428 today. If you’d like to contribute to Frugal Rules, please contact us.

Some things fit perfectly together. Peanut butter and jelly. Batman and Robin. Yellow and blue. Separately they have value but when they come together, they create something extraordinary.

The same cannot be said for emotions and investing. Like oil and water, they simply don’t mix. There is no place for emotion in the investing world if you want to have success.

My Emotional History With Investing


I started investing in 1996, just after my wife and I were married. It was the height of the 1990s bull market run that saw computer, technology and Internet stocks in particular soar to record highs. A company could go public one day and be at $200 a share the next without ever making a single penny in profit. (That’s a slight exaggeration but accurately defines the lunacy of the time.)

This was the investing world that greeted me in my mid-20s. It seemed like everyone was getting rich overnight. Secretaries at Microsoft were becoming millionaires. The short-term trend was the word of the day. Get in and get out as quickly and as often as possible.

I wanted a piece of that action and, like everyone else, didn’t want to wait for it.

So I started watching the financial news and making trades based on commentator suggestions. I began reading books on how to get rich by trading options. I even sent $1,000 to a friend of a venture capitalist friend, trying to get involved in a business-to-business Internet startup.

As you know, in 2000 the market finally broke. Stocks fell for two straight years, the decline sharply accelerated by the events of 9/11.

One of my greatest wishes is to have those first five years of investing back. My focus was clearly wrong and I routinely let my emotions get the best of me. When things were going well, I felt unstoppable. When things were going poorly (which happened with regularity) I’d feel like a failure.

And in both states of emotion, I’d make terrible investment decisions.

Lessons on Emotions and Investing


Although my wish is to have those investing years back, going through them revealed to me that I had to find a way to keep emotion out of my investing life. So for that I am thankful for the mistakes in that they taught me how to be a better investor. My philosophy on how to invest changed and has resulted in some great successes since 2001.

Here are a few key lessons I learned during those years:

The market never goes straight up. It may seem like the good times will never end. Trust me they will. The market ebbs and flows and those who invest have to come to terms with that. It’s the market’s nature and if you are going to invest you have to be emotionally willing to take the good times along with the bad.

Refuse to be married to your investments. Investments should not be a love affair. Yet that is what happens. We fall in love with that one special stock and we end up being blinded by that love when things turn south. We think that as long as we love the stock it will love us in return. It just doesn’t work that way when it comes to investing.

Dreaming about what might happen is dangerous. When on the plus side of a trade, we trick ourselves into thinking the trend is going to stay that way. I would always think about “how much I could make” should the stock continue to climb. Thinking about what might happen kept me from making a wise decision.

I once was up almost $5,000 on an options trade that still had two months to expiration. That would have been a gazillion percent return on what I had initially invested. The way the stock had been trending it seemed the only direction was up. In my mind, clearing 20k was certainly doable. So I sat on it instead of selling and realizing that big return.

To my dismay, the stock languished for the next month. Then it started trending downward. My return began to decrease but because I was married to the investment I fooled myself into thinking it would eventually turn around. It never did and I ended up only breaking even.

Never make a trade based only on something you hear in the media. The news media specializes in whipping up emotions. Call me cynical but I think that’s part of their agenda. It drives people to tune in. (Editor’s note: Brian is right on here. They have one agenda…ratings.)

So they did to me on the morning of January 10, 2000 when I turned on the TV to learn that AOL had bought Time Warner. It was shocking…historic…groundbreaking…a sure-fire winner. Being an AOL fanboy at the time (it’s easy to forget the popularity of AOL in the mid-1990s), I was excited for this. Within 30 minutes I had made a trade, hoping to profit on an upside movement in AOL stock.

That upside never materialized. The merger would be called – just a year later – “the biggest mistake in corporate history” by Time Warner chief Jeff Bewkes.

And of course I lost money on it.

Single stock investing is emotional, and even risky business. See above point.

I’m not saying there can never be a place for individual stock investing. It simply takes more wisdom and nerves of steal than I had at the time. I would never counsel a beginning investor to start with individual stocks. Learn how to invest in index and mutual funds instead. There will be enough emotion to handle just doing that.

Get away from short-term thinking. A longer-term strategy dampens the emotion. When I realized this and adjusted my strategy, my investments began to consistently grow. Thinking 10, 20 or 30 years down the road helps put the mind at ease during any given crisis. You will end up making wiser and more profitable investing decisions (see below).

Emotions and investing seem like they go together when they really don't. It's a long-term investment approach which serves best in growing wealth.

The Benefits of Mastering Your Emotions


If you can keep your emotions in check two things will happen that will vastly improve your ability to succeed at investing.

First, you will end up investing more money when the market is in pain.

Do you have any idea when the best time span was to invest in the market during the past decade? In the course of nearly a year from October 2007 to August of 2008, the Dow Jones Industrial Average lost approximately 3,000 points, from its then all time high of 14,093.08. During the next six months from Sept. 2008 – Feb. 2009 it proceeded to lose another 4,800 points before bottoming out at 6,626.94 on March 2, 2009. That’s an astonishing, once in a lifetime drop!

Everyone was panicking during those months and shortly thereafter. Emotions make you do that. So investors sold, just “to get out” at any cost for fear of losing everything.

Those who kept their emotions in check and put money into the market during those bleak times are sitting on a gold mine of returns today as the DJIA now sits at nearly 17,000.

Secondly, controlling your emotions will also keep you from cashing in when times are good.

The DJIA and S&P have been making new all-time highs this entire year. Analysts are beginning to warn about the next 20-30% drop in stocks. “Sell now” they say, “and wait for a reversal to purchase stocks at lower prices.”

This once again promotes fear and is a foolish proposition for the long-term investor. The market being at an all-time high really doesn’t matter to me. My risk in selling is losing out on the continued upward movement in stock prices. If prices do fall it doesn’t matter. As I’ve already mentioned, with my emotions in check I will continue to invest when times are bad.

My encouragement today is to keep emotions out of your investing life. I’m not saying it will be an easy task. When the market was in free fall in late 2008 I was as nervous as the next guy. But I didn’t let it impact my investing strategy.

The mind and will must be stronger than the emotions or you will end up making silly mistakes and losing big time returns.


What emotional investing mistakes have you made? Have you ever fallen in love with an investment only to have it bite you? Does the media have an influence on how you invest? Does anyone still use AOL?


About the author: Brian Fourman is a former private school personal finance and Bible teacher now turned stay at home dad and blogger. His hobbies include rental real estate, running, cooking and sports. In his down time, he loves hanging out with his four kids and hearing his wife talk about all the cool things CPAs do at work. You can check him out providing encouragement and inspiration on his blog at or by connecting with him on Facebook, Google+ and Twitter.



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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Autumn @ The Barefoot Budgeter says:

    100% agree – I don’t have any single stock investments right now for this very reason. This may change someday, but so far it’s worked out for me. It’s much harder to get emotionally involved with an ETF or mutual fund.

    • Brian @ Luke1428 says:

      The psychology behind this is very odd. I don’t get emotionally charged about the ups and downs of my index or mutual funds at all. But put me in a single stock or an options contract of some kind and it simply winds me up.

  • Kassandra @ More Than Just Money says:

    It also took me a couple of missteps in the market before I understood I needed to separate my emotions from the process. I don’t currently own any individual stocks as I prefer a simple approach to investing which is index/ETF. Not to say I wouldn’t consider individual stocks but I know I don’t have the time or inclination at the moment to do the proper research – what I failed to do in the past!

    • Brian @ Luke1428 says:

      I’d say being able to do and understand your research is a big deal. I would only recommend single stock investing to a more seasoned investor, who already has other investments in place, is well diversified and has extra cash they don’t mind risking.

  • Chaz Miller says:

    “There is no place for emotion in the investing world if you want to have success.” So true! There’s a reason you don’t see ‘market-timers hall of fame’ lists. Emotional investors are subject to a similar fate as the market timers.

    • Brian @ Luke1428 says:

      “There’s a reason you don’t see ‘market-timers hall of fame’ lists.” Haha…I love it Chaz!

  • Stefanie @ The Broke and Beautiful Life says:

    I try to stay away from checking my investments too often so that I don’t get caught up in the short term emotions of it all.

    • Brian @ Luke1428 says:

      That’s a great strategy Stefanie and probably the #1 thing an investor can do to cool down their emotions. I remember being so fixated on the daily gyrations of the market and the talking heads on the news networks…that constant attention and noise had me eaten up on the inside.

  • Holly@ClubThrifty says:

    This is exactly why I invest monthly in index funds. I don’t like getting wrapped up into all of it and I know that slow and steady wins the race.

  • Laurie @thefrugalfarmer says:

    LOL, there’s a King of Queens episode about this and it marks perfectly our emotions when we first started investing. Now we’ve learned to keep emotions out of it and not to take huge risks because we know it doesn’t suit our psyches. 🙂

    • Brian @ Luke1428 says:

      I was so lost with my emotions early on. It was rather embarrassing. I wonder how much of that has to do with being in my 20s though and not being as mature (seasoned) as I am now?

      Boy, typing that last sentence made me feel real old. 🙂

  • Nicola says:

    I haven’t made the jump into investing for exactly this reason – I’m worried I’ll get too attached and lose everything. I need to research funds and trusts more, I think.

    • Brian @ Luke1428 says:

      I understand that fear Nicola. Honestly though, the risk of you losing “everything” if invested in index or mutual funds is slim. With those, an investor has instant diversification. So if several companies in the fund do poorly, the other stocks in the fund help balance that out. Even in the latest giant market correction in 2009, I didn’t lose all my money. In fact, I didn’t lose any because I didn’t sell. I road my funds through it, invested more during the down time and am now really enjoying that decision as the market has returned to all time highs.

  • Natalie @ Financegirl says:

    Great points here, Brian. Since I don’t make investing a hobby (at least I am not until I get out of student loan debt), I only invest in index funds, leaving the emotion out. I will have to remember this if and when I do get into investing into individual stocks. I don’t want to be on the wrong end of that equation.

    • Brian @ Luke1428 says:

      You are wise for focusing on the debt first, imo. There will be time later to invest. And you’ll be able to supercharge that investing because you will have no more debt to deal with.

  • Grayson Bell says:

    I agree wholeheartedly. You are correct. There are times when my emotions can get in the way, but I always get it together before I make any market moves. I wrote about this on an investment blog not too long ago.

    • Brian @ Luke1428 says:

      I don’t know what it is like for you Grayson but when I was single stock investing, I found it more difficult to control my emotions when I already owned a security. Making a decision to stick or get out was my biggest challenge and created the most emotional conflict.

  • Kim says:

    I totally remember AOL, “You’ve got mail!” That’s a good example of how things change and how volatile stocks can be. I’ve always just put money in every month, even with some of my other financial decisions were not that wise. I know several people who pulled out at a huge loss and still don’t trust the stock market. Long term thinking is key, but so many people only see today.

    • Brian @ Luke1428 says:

      Another funny story about AOL that no one from the current generation would get…Remember when they went to an unlimited access plan and the demand was so great it literally broke their servers? I remember it taking about a week before I could log on consistently again.

      Don’t miss that annoying dial-up, tone/ring either.

  • DC @ Young Adult Money says:

    I’ve become a lot better the past few years at taking the emotional side out of investing. I’ve made some emotional individual stock trades in the past and they have never panned out. The past few years, though, I’ve simply thrown money in my 401k and watched it slowly grow over time, rarely checking it.

    • Brian @ Luke1428 says:

      The best emotional charged trades are ones that come through tips of “a friend of a friend” who has inside information. “Can’t miss out on it!” he says. Fell for several of those.

      I think your strategy now is a good one DC.

  • Aldo @ Million Dollar Ninja says:

    I agree. I’m not invested in any single stock at the moment, but I keep investing in index funds through thick and thin. I only check my funds every quarter to make sure everything is fine, but I try to stay away from the news and from checking daily. I think I’d go crazy if I checked everyday.

    • Brian @ Luke1428 says:

      “…I keep investing in index funds through thick and thin.” This is so boring Aldo but is 100% the way to go. Index funds should be part of every portfolio, imo. Once those are fully established, you can branch out into other investments like mutual funds or real estate to try and give your returns some extra juice.

  • Shannon @ Financially Blonde says:

    This is why I love asset allocation and rebalancing. When you commit to an asset allocation mix and rebalance when the mix shifts, it takes the emotion out of what you have to do. When stocks are up, you have to sell them and buy bonds that are down and vice versa. It is all about the numbers and less about the emotion. One of the biggest things I do with clients is counsel them on their investing emotions, and the more I can get them to focus on numbers and math and less on emotions, the better they are in the long run. It’s easier said than done, though.

    • Brian @ Luke1428 says:

      “…counsel them on their investing emotions…” That was the first thing our adviser had us consider. He wanted to know our risk tolerance and how charged up would we get during the peaks and the valleys (because there are dangerous emotions that occur in either direction). I think he was also secretly testing how high maintenance of a client we might turn out to be. 🙂

  • Brad @ How to Save Money says:

    100% right on in every one of your comments, suggestions and thoughts. I could not agree with you more. Keep your emotions out of the way of your investing. If the two get mixed, you have a disaster on your hands.

  • Shannon @ The Heavy Purse says:

    Love, love LOVE this, Brian! Emotions and investing don’t mix and unfortunately it’s combination many investors bring with them. And it’s not just those who invest in individual stocks, but every investor. I do remember those heady days where it seemed almost impossible to not see substantial growth to those dark days where people saw huge losses in their portfolios. So many people cemented those losses by getting out of the market and now they are kicking themselves, because they have to get back in at the “high” point. We forget that as much as losses and down markets hurts, it is when they go back up where we see the huge gains.

  • Brian @ Luke1428 says:

    “So many people cemented those losses by getting out of the market and now they are kicking themselves, because they have to get back in at the “high” point.”

    That sentence should be carved in stone and drilled into the minds of every investor. It’s why so many can’t win in the market and then get turned off in investing altogether.

  • Femme @ femmefrugality says:

    I totally remember when TV ads didn’t list websites, just AOL keywords. I wasn’t old enough to be investing at the time but don’t blame you for trying to go on that merger.

  • Ben @ The Wealth Gospel says:

    Great thoughts, Brian! Luckily I learned this lesson while investing in the virtual stock market 🙂

  • debs@debtdebs says:

    Great experience gained, Brian. You sound like a pro! Too bad you had a few bad ones but that’s the only way to learn, so they say. Do you still do options trading today?

    • Brian @ Luke1428 says:

      I don’t do options anymore. They do have their place, mostly for professional traders and I don’t deny the potential is there to really hit it big. I just seemed to always hit it big in a negative direction.

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