How emotions affect your investment decisions
MANILA, Philippines - As the Philippine stock market continue to record new peaks and break new levels, an analyst said investors should take also take into account how human emotions affect one's investment behavior to get ahead and avoid losses.
"You don't need need to crash a plane to learn how to fly. So the same with the stock market, once they understand the precaution, once they understand the emotional cycle of investing or how the human psychology work on the market, then you will outperform, you will do well," Edward Lee, chairman at COL Financial Group, told ANC's On The Money on Tuesday.
Lee explained human emotions greatly affect the timing of investors' purchase or sale of company shares.
"When the market is going up, they become more greedy and when the market is going down, they hope that the market won't go down... and there's fear," Lee said.
That "hope" investors cling to turn into desperation coupled with panicking as the market index falls, Lee noted.
The Philippine Stock Exchange index has already reached 21 record highs this year, the most recent of which was recorded at 6,721.33 on Feb. 25. This is already 15.63% above the 5,812.73-finish recorded in end-2012.
But despite the market's bull run, Lee pointed out most Filipinos are still scared of investing in the PSE.
"There is a lot of skepticism, people are still so afraid to invest because they don't understand that we're seeing new territories and interest rates are at an all-time low," Lee said.
He noted that the country still has "a long way to go" given that only about 600,000 of the 90 million Filipinos dabble in the stock market.