Manage Your Emotions

There will always be deals the seem "too good to be true"

. Some once mammoth companies trade for less than three dollarsper share. $10,000 for a condemned house? Let's put all our savings into buying it and fixing it up. It seems too good to be true, right? Wrong. No one ever became wealthy by making irrational decisions with their money and letting their emotions take over their actions.

When making an investment decision, try to argue a case in defense of why you want to make that decision. I like to think I'm arguing my case in front of a jury. What are the holes they will knock in my plan? If you're about to "invest" in anything and you don't really know why, consider taking a minute to review your data before proceeding. "It's a great deal" doesn't count. In my experience, I don't make the same tempting investment once I review the facts. And what about the times I lunge in for the kill? Well it feels like I just got punched in the stomach by Mike Tyson. Why? Because buying shares of a company is not the same as shopping at Costco. 99% of the time, the company's stock is priced fairly for what the market sees as its value. The cheaper the stock, the higher the likely hood is that the company will go bankrupt and you'll lose all your money.

In 2009 companies like GM, Citigroup and yes even AIG looked tempting, but recall how it went from there. Control your emotions and think rationally about it. At one time, these once great companies were "on sale" but remember there is a reason for it all. I don't want to invest my nest egg in companies like this. Chances are good that these companies will take a long time to recover. The same was true not too long ago. Companies like Cisco and Lucent were exploding to higher highs every day. Once a hundred dollar stock 9 years ago, Cisco now trades around $20. Lucent was another superstar of it's time, flying into the $70 per share range, only to fall to $1. Yes, $1! It rallied to $3 and was bought by another company. These companies never bounced back and this is not uncommon. They are called penny stocks for a reason. It's because they are cheap and don't have much value. Fund managers don't really carry many penny stocks in their portfolios and neither should you. The government is considering doing away with minting pennies. Maybe we should consider getting rid of our penny stocks too.

by: jamiesmoneyadvice

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