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Are You Addicted To Investing?

According to the NHS, there are over half a million problem gamblers in the UK. That’s an astounding figure, and shows that for many people the thrill of a potential win can be enough to cause difficulties in other areas of their lives, such as their personal relationships and finances.

Of course, investing and gambling are two very different beasts. For example, in gambling the house always wins, while when it comes to investing there are a number of proven strategies, such as buying an index tracker, or value investing, that in the long run deliver relatively impressive results.

However, could it be the case that many investors are more akin to gamblers? And, more importantly, are you and many other stock market participants simply addicted to thrill of investing, rather than the long term benefits that it can offer?

Trading

As communication has evolved via the internet, it could be argued that many investors are not really investors at all. In fact, they are more akin to traders (and, in some cases, gamblers), since they take a short term view on their investments and lack patience when it comes to giving their capital time to grow. For example, many people do not fully consider the risks that are present before buying a slice of a company; preferring to focus on the potential reward should things come good for the company in question.

Obsessing Over The Here And Now

Furthermore, many people check their portfolio valuations very frequently and end up obsessing over relatively small movements (in percentage terms) in the value of their investments and allow it to affect their judgement. For example, if their portfolio is down today, they may take more risks to try and recoup their (paper) losses, or it could lead them to panic and sell, when in reality it is a much better time to buy.

In addition, a lot of people who own shares in a company will check the news flow regularly and allow the short term trading of a company to affect their judgement. For example, a company may have endured a challenging quarter but could still have a very bright longer term future, but short termists will focus on the here and now more often than the prospects for growth next year and the year after that.

Patience

One of the challenges posed by investing is remembering that you are dealing with real-life businesses. As such, it can take years for the right strategy to have a material impact on a company’s bottom line, with the intervening period often containing disappointment as costs are cut, capital is invested without a quick payback period, and other investors lose patience with the company’s progress, thereby sending its shares downwards.

However, if your goal is to increase your net worth in the long run, then buying high quality companies and sticking with them is a great strategy. Just look at Warren Buffett and countless other buy and hold investors; they have made their fortunes over decades, while others such as Jesse Livermore have lost theirs in a matter weeks and months.

A Sensible Approach

Of course, it is a sound idea to keep up to speed with progress at all of the companies in which you are a shareholder. However, doing more than checking out annual and interim results, as well as keeping an eye out for significant news flow, can be counterproductive – especially when you are taking a long term view. And, while it is exciting to see the value of your portfolio go up, if you are a net buyer of shares (i.e. you invest more than you take out of your portfolio) then lower valuations in the short term can work to your advantage in the long run, so a falling portfolio value should not be a major concern.

Clearly, all humans are emotional and ridding yourself completely of fear and greed is nigh on impossible. However, remembering that you are not in it for a quick buck, nor for the excitement, should help you to remain an investor with a bright long term financial outlook, as opposed to a gambler who could end up having a problem.

With the above in mind, the analysts at The Motley Fool have written a free and without obligation guide called 7 Simple Steps For Seeking Serious Wealth.

It's a step-by-step guide that could make a real difference to your portfolio returns in the long run by helping you to find the best stocks at the lowest prices.

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