Sunday, January 13, 2008

Money, Investments and Emotions... (Part 3)


The same old story, Huh? Money, Greed and Emotions… Even though there are many historical references about the human conflict between these three factors, How about if we focus our effort by talking about this “old and still current” conflict as of the old yet “fresh” reference from the Wall Street Crisis in 1929?

The chart makes a very clear reference about a “soul-and-money” relationship between the human psyche and money so it is a good idea to try to get some less complicated picture about the stages where you as a human being based upon your humble –and some times not exactly rational – expectations and feelings, try to decide what to do with the money that –let’s say- at the end of the year receive from your job and effort.

The bottom line here remains basically the same:
  • Do you have at least some basic financial knowledge to know what you want to do with your money?
  • Do you know if you really, really need to buy something or pay first your debts or bills?
  • Do you know if you really know how, when and where you should invest your money?

Ok, let’s assume that after a careful (Really?) conversation with your wife you are “ready” to explore –your buddies “recommend” you to talk with some “financial adviser” they seemingly know- how long you should wait to see some guy known as Financial Adviser will “make” your money grow thanks to a careful investment / savings program.

Let’s assume that your financial adviser has designed a feasible investment strategy for you and your money (Wait! There are more questions!):

Are you fully aware that even though you could feel optimistic (stage 1 to 4 on the chart: Optimism, Excitement, Thrill, Euphoria) about some “good investment alternatives” he should have warned you beforehand about possible underlying risks that could make you feel worried (stage 5 to 12 on the chart: Anxiety, Denial, Fear, Desperation, Panic, Capitulation, Despondency and Depression) about the possibility of experiencing losses and see your money fade away?

It is fact that you wouldn’t like to lose your money in a place that is unfamiliar for you but… Are you ready to realize and accept that you could be greedy (“Wow, I feel great about this investment” = point of maximum financial risk) but all of a sudden you get worried (“Temporary setback, I’m a long term investor”) and start panicking when you are losing money indeed (“Maybe the markets aren’t just for me” = point of maximum financial opportunity)?

Here we go again… having at least some basic financial knowledge in addition to working with a serious financial adviser, should be a couple of key issues to help you realize and accept that investing your money in financial alternatives, knowing that you could face some underlying risk and the possibility of losing money –like your life- can resemble a “roller coaster”: one day you are at the “top of the financial world” and the following, you are at the “bottom” alone and suffering (please, don’t get drunk).

It is a curious analogy but getting involved as an investor in modern financial markets, is also a “roller coaster”; after you’ve accepted that you couldn’t have a basic financial knowledge and experienced those 12 stages, there are three more (!) before you are ready to start once again: Hope, Relief and Optimism…

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