DESTRUCTIVE EMOTIONS

There are four that are really important in investing: greed, fear, hope and pride.

Greed

Greedy investors tend to be over-confident and want to make as much money as they can in a
short period of time. They want big profits and they want them now. The desire to make
money, however, is in many instances unrealistic. If, for example, I gave you a small
vegetable patch and told you to feed your family from it, you would probably think about it
logically and deduce that you had insufficient resources at your disposal to achieve the aim.
Contrast this with the amount of people I speak to who want to invest $5,000 in a commodity
account, and earn a living from it and retire from their job. The chance of achieving their
desire is almost nil, but over confidence and desire overcome logic and objective thinking.

Fear

All people fear losing money, worrisome news in relation to their investments and savings
stimulates more fear. Fear then spreads; a fearful man’s psychology is contagious. If people
around us are fearful, so are we. If we have suffered fear in the past, we retain all our past
experiences in our subconscious mind. Finally we have the fear of losing. Also, if we see
other people making money, we want to be in on the action as well.

Hope

This is defined as the expectation of something desired. However, investment decision
making should not be based purely on desire, but on a rational assessment of the facts. When

a trader loses he hopes that things will get better when he really should be being objective.

If you read the great traders, you will constantly see them refer to Hope and Fear and their
destructive power.

“Hope and fear: I have written about this often in my books, and I feel I cannot repeat it too
often. The average man or woman buys commodities because they hope they will go up or
because somebody advises them they will go up. This is the most dangerous thing to do, never
trade on hope. Hope wrecks more people than anything else. Face the facts and when you
trade, trade on facts, eliminating hope.”
“Fear causes many losses. People sell out because they fear commodities are going lower,
but they often wait until the decline has run its course and sell near the bottom ... never make
a trade on fear.”

W.D. Gann

“The successful trader has to fight ... two deep-seated instincts, instead of hoping he must
fear, instead of fearing he must hope. He must fear that his loss may develop into a much
bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to
gamble in stocks the way the average man does.”
“The speculator’s chief enemies are always boring from within. It is inseparable from human
nature to hope and to fear.”
Jesse Livermore

After greed the average speculator, to achieve his desire, falls victim to both hope and fear
and ultimately loses his money.