The financial markets, and economics in general are largely driven by psychology, although ultimately supported by fundamentals. In turn, investors typically rush to buy stocks when the general mood is good, and stay away from stocks when the mood turns negative. A standard anecdote amongst investment advisors is that “Wall Street is the only market in town where nobody wants to buy at a discount – everyone wants to buy at a premium”. A disciplined, long-term investment strategy involves making investments not only when the market is strong, but perhaps even more importantly when the market is weak. Investors that understand why they are investing, what they are investing in and maintain a focused strategy will be able to withstand and overcome the emotional and psychological impulses that undermine consistent and successful long-term wealth building.
