How to Invest in Germany: Psychology of Investing

How to Invest in Germany: Psychology of Investing

Introduction

This the last part of the “How to Invest in Germany” series. So far you mastered all Asset Classes in Part 2, taxes on investments in Part 3, the 7 investing tips in Part 4, and the 8 investing fails in Part 5. So all you need to master in order to become a true successful investor is your own mind. As soon as you conquer your mind and are in control of all your emotions, you will see your investment results improve dramatically.

“As soon as emotions take over your investment decisions, you are doomed.

Psychologically speaking humans have 2 fundamental motivations that can be applied to investing. These 2 are the reason that we are our own worst enemy when investing. Imagine your brain has 2 sides that make investment decisions for you – a good side (Angel) and a bad side (Devil):

  • The Angel is the good side of your brain that wants to protect you. It wants to protect you from fear of making mistakes or fear of losing money.
  • The Devil is the bad side of your brain that is greedy and tries to get rich quickly while ignoring all rational. Risk doesn’t matter for the return your devil is hoping to get. He is willing to do anything.

These two emotions can influence your investment decisions in a problematic manner. Similar like Personal Risk Tolerance it depends on your genetic code if you can control your emotions easily or not. Especially new investors who face difficulties keeping their emotions in check should seeks help from professionals who happen to have a certain clarity that allows them to form a rational judgement.

Otherwise, when your brain is trying to resolve the conflict, you will start to justify your emotional behavior. We see this very often with clients who invest with us or people who want to invest with us. New investors tend to rationalize their emotional behavior. When that happens, you will start managing your money in a way that feels good, rather than managing your money in a way that is good for you.

To protect you from this and start your investing career as successul as possible, let us try to learn more about these 2 emotions so that you can also learn to control them.

Greed: The Devil on Your Shoulder

PerFinEx Investing Devil

Imagine any market (Stocks, Real Estate, Bonds, etc) you can invest in like a sinus wave that is mixed of fear & greed. When markets rise, many Investing Fails like Fail #4: Buying What’s Hot & Selling What’s Not and Fail #5: Listening to Investment P*rn come together to make your investing devil speak to you:

“Buy now! You are missing out on a great return.

Your friends are also talking about investing now and over time, the only one who has no say about investing. Soon enough you are beating investing Fail #7: Procrastinating and start investing. Of course you are checking your investments and investment news now all the time because this whole investing thing is exciting and new for you.

And when the market continues to rise, you are making a profit and get positive feedback. So you devil gets louder and louder. You are starting to think that past performance is an indicator for future results. You are chasing performance. And you start to ignore risk as the devil takes over your investments decisions.

Fear: The Angel on Your Shoulder

PerFinEx Investing Angel

But any given market tops eventually and will start to go down afterwards. Nobody knows when a market will top and nobody knows how much it will go down. But as soon as the market tops you will get punished for being greedy. And soon after you will be below your entry level. All that nice performance your greedy devil was so happy about is gone. So your investing angel is speaking to you:

“Sell now! Secure what is left of your money.

That is how we humans are wired. The job of the brains is to protect us. But an investment decision made from greed or fear is almost always the wrong decision. If you follow the lead of your investing angel, you could sell your investments at the worst possible moment thinking right when the market hits its bottom.

Buying high, selling low. Does that sound like a winning investment strategy? Successful investor follow the exact opposite. They buy low and sell high. They stay rational and buy the fear and sell the greed. Not the other way round.

Why You Feel Fear & Greed when Investing

Where is this fear from investing and this stress from rising markets coming from anyway? Imagine you are flying with a plane from Germany back to your home country to visit your family. You get to one of the airports here in Germany and take off. You board the plane despite the fact that you know, that your plane might crash.

People die in plane crashes every year. Like there are people dying in car crashes, or just staying home. You are still boarding the plane – like everyone else would do. Because a regular commercial flight is not a particularly life-threatening journey.

Now imagine instead of a regular commercial flight, you fly the plane from Germany back to your home country yourself. Why do you feel fearful or stressed now? Because you are uneducated about flying airplanes and don’t know what we you are doing. And the chance of you dying without knowing how to fly an airplane is pretty high.

 

But what is the difference in these 2 scenarios? The journey is the same, the airplane is the same, everything is the same. There is only 1 difference, and that is the one difference that is creating the fear. You do not have the skills or the knowledge how to fly a commercial airplane – only a pilot does. A pilot posseses the knowledge and the skills to fly you safely from Germany back to your home country.

Conclusion

Investing is the same. If you don’t possess the skills and the knowledge How to Invest, it is a fearful thing to do. We are here to help you on your journey. PerFinEx is your pilot to get you safely to whatever financial future you want to go for. Secure your Free Meeting or text us on WhatsApp on +491755030773 and we will do the best we can to fly your plane.

As this is the end of the How to Invest in Germany series, we wish you a lot of investment success. Most people will never get the financial education you got in this series. So make the most of it and alyways remember: With great power comes great responsbility. So take your financial future in your hands.

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