Emotions In Investing - Do Your Research Right Before You Invest In A Stock

Humans are all emotional beings. We do not always make choices rationally. Emotion is part of us as investors. Investors may feel better towards stocks at certain point or they might feel that owning stocks are risky and steer clear of it at all costs.

Investors might also really feel attached to a specific company and continue owning the stock without regards to how the company is doing. For instance, you may like Google's search engine so much that you decide to buy the stock at $350 without doing any analysis.

You figure that Google's internet search engine is so much better that acquiring the stock will give you profit, right? Wrong. Now, I am not right here to bash Google as an investment, but examining an investment goes beyond the products and companies.

Most investors can identify good businesses and products. It really is quite simple. You know that a Mercedes is a better car than a Ford or a Civic.

The next question is just how much must you pay for a Mercedes or a Civic? This requires us to put aside our emotions for a second and think clearly.

Sure, you want to have a Mercedes in your life. It truly is luxurious and has nicer looking features than a Civic has. But, that does not mean you should overpay for it. It works similar with stock investing.

Google can be a fantastic search engine, probably the best that is ever produced so far. Sure, you most likely spend more for Google than other generic search engines. But, please do not over pay. You invest in Google to profit from it not because you like its products.

So, how do we get rid of emotion from our investing selection? We can't eliminate it completely but there are certainly tools that may help.

One would be to calculate the fair value of a common stock that you simply are investing in. I covered this plenty of times, but basically, the fair value of an investment is determined by the streams of profit generated by it.

In the long run, if business X earns more than company Y, then company X is going to be valued more than business Y.

For a business that is growing like Google, you'll be able to incorporate its growth and calculate the fair value with growth. I have talked about this once and you are welcome to check our commentary section.

If you are considering buying stocks for a company going public, make sure you've done all your research. Lots of companies go public to boost their business plans. For more information, search: company go public.

I know I didn't exactly provide you with the very best remedy to the problem. Emotion is difficult to ignore. I'm not immune to that. But following your feelings will cost you a lot of money.

Just watch those investors that bought stocks during the NASDAQ peak in 2000. Don't go along with the herd and keep your focus on the fair value of your stock. You may do really, truly well.

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