After I wrote my earlier blog on “Avoid Investing in Dead Assets”, I had received various calls from my friends and colleagues to discuss the pros and cons of investment in dead assets. I must say the discussion was overwhelming and one of it triggered the spark to write on the investments driven by emotions. I am heartily thankful for the admiration and response received from all those who spare few minutes from their busy schedule to read my blogs and bother to respond and appreciate my little effort.
The investments driven by emotions are one which we make keeping in mind our social status and circle, and not our actual need. Like I said in my first blog “Save Your Hard Earned Money”, “Always expend responsibly and shop stuff you need and not the one you simply want to have.” The same applies to investments as well, as we should invest in what we need to invest in and not the one which others have invested in. I will try to keep my words simple for easy understanding of the interplay between emotional investment and dead assets.
Interplay Between Emotional Investment and Dead Assets
When our investments are driven by our emotions and not by our rational thinking, we end up investing in Dead Assets, the one way or another. In this scenario, our social circle and society becomes the driving factor, and a person leaves behind the thought of the means (sources) from which such investment is being made and the need for which such investment is being made.
Emotional Investment Has Broader Aspects
Emotional investment has a wider net and it is not only confined to investments in dead assets. The investment of a person can be emotionally driven in case he/ she is investing in money market (Equities, Futures, Commodities etc), where the greed to earn more money or the fear to lose more money, becomes major driving factors, then technical and fundamental analysis of the scrip.
Furthermore, while investing in any business venture, the emotional investing comes to play, when investment in such business venture is driven by the nature of goods/ services, rather than actual marketing, profitability, payback time and so on. For instance, if you have “x” amount to initiate a business venture and you are given two options; a) invest in scrap dealing business (say, iron scrap etc) and b) invest in some brand outlet (say, clothing and accessories) at a Connaught Place in Delhi. What will you choose? Mostly people will choose to go for option ‘b’ and drop option ‘a’ immediately, without thinking about heavy franchisee fees which they need to pay, huge investment in capex and less working capital/ profit margins in option ‘b’. The reason is obvious that, the investment was driven by our emotions and not by rational thinking.
Now the question is how can we shun the emotional investments? As simple the question is, the answer is simpler. We need to have a self-evaluation for our maintenance and actual needs, which shall not be magnified by the social comparison factor. We should park this point in our minds very clearly, that not all fingers are same; likewise the earning and spending pattern of two individuals can’t be the same. A necessity for you, may be luxury for some and vice versa.
I would also like to add that excessive emotional investments often lead to depression and regret, as the means are saturated and the needs suffer. One more thing which comes to my mind is that when your heart rules over your head, you result in emotional investments.
“Always remember we invest to earn and grow wealth; and it should not be at stake of mental health.”
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