Ajay Gupta (name changed) fell prey to greed. A distant relative approached him a few months ago with an existing investment opportunity. A guaranteed return of 3% per month or 36% per year. This offer was a difficult one to ignore, plus he trusted the person making it. He took it.
Ajay worked with an MNC in Mumbai and now was sending almost 50% of his salary every month into this incredible investment opportunity. The results were showing up. Every month he received a fat interest which he reinvested.
The family was not to be left behind. Ajay’s sister and parents too jumped in with their money. How could they miss out on this never before opportunity? So much so, that they withdrew their bank deposits which were earning, in comparison, meagre returns of just 7% interest per year.
Until one day. Suddenly, the relative was nowhere traceable. After a few weeks of hectic following up, the news arrived. The ‘party’ who he had lent the money for the incredible returns has declared bankruptcy.
The hard earned money of the entire family vanished in no time. It was a great shock to take in. The financial foundation was shaken to the core. Bitterness with the relative followed.
Those who found out asked the ‘investors’ just one question – “how come you turned so ‘greedy‘?”
Fear and Greed rule your mind too and the world’s
Ajay and his family are not alone in letting emotions rule them, specially when it comes to money.
Einstein said, “There are 3 great forces in the world. Stupidity, fear and greed.”
Your stupidity can make you fearful or greedy. Or, if you are being fearful or greedy, you are actually being stupid.
Fear and greed rule our minds. In any given situation, it is highly likely that our mind will swing towards one of them.
Take a simple instance. How many things have you been buying which you do not really need? The world of advertising uses this fear-greed mechanism to influence you to buy these “not needed” things.
Fear of rejection makes you buy that expensive car and that skin whitening cream. Fear of losing makes you sell your investments when markets show even a slightest sign of weakness.
Greed drives you to invest in expensively priced stocks or buy that dud insurance policy that has nothing to do with your real insurance needs. And yes you also buy that deodorant that will make you attractive to the prettiest or the most handsome.
The Drivers of your Financial Behaviour
Fear and greed are big drivers of financial market behaviour too.
I have heard several stories about of investors who, clutched tight by fear or greed, lost their money, sometimes all of it, in the financial markets.
Carl Richards of Behaviour Gap put it very aptly in his sketch.
It is just not easy to escape the fear-greed duo.
What should I do?
Yes, we fail to check these emotions. Yes, we let them control us and then make disastrous decisions.
And this is because, our mind is not trained to handle them.
That does not mean, you can’t. You can train your mind to deal with these rogues effectively and take control of your decisions.
As simple as it may sound, here is an idea for you to remember. Don’t be impulsive with your decisions.
Whenever you are faced with a decision, stop yourself and ask:
“Is my fear or greed driving this decision?“
Ask not once but 3 times. And if you will be able to see the hidden fear or greed, if it is there. Once you know that, you will also know what to do.
Over time with practice, you will learn to use these emotions to your advantage instead of they using your mind to inflict harm on you.
Practice this simple idealong enough and you are well set to travel the road to being rich and happy.
Between You and Me: What’s your experience with fear and greed? How have you used them?