No Gordon, Greed is NOT good

As I’ve taken a more intimate interest in stock picking and trading, I’ve noticed something that I’ve never really experienced before. A sense of… greed.

For example, one of my stocks has been improving recently. So I feel this urge to put more money into that stock so I “don’t miss out!”. Pure simple greed. I have overseas shares, and I feel an urge to time the exchange rate fluctuations (ignoring the fact that I have no idea what the exchange rate will do!) to make more money. I recently sold Xero shares on the assumption that they would go out to the market to raise more capital, diluting the current shareholder base substantially and thus devaluing the shares. Now, Xero have gone to the market, they have devalued the share base, but the shares have shot up about 40%. I feel an urge to buy more Xero shares to not miss out! Even though rationally, I have little idea other than speculation why the shares have appreciated so much.

Pure, simple, unadulterated greed. I find it fascinating that it appears to be a very base emotional response. Now I’m very aware of it, so my rational mind can (most times!) crush it, but I never realised it is such a fundamental part of me. And I’m guessing I’m not alone…

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No Gordon, Greed is NOT good

2 thoughts on “No Gordon, Greed is NOT good

  1. I don’t agree that this irrationality is due to greed. Even if we are able to achieve rationality, the objective is still to maximise our returns. Therefore, if you believe that being rational will increase your long-term return, then is greed the motivation for being rational?

    I think that Lizard-Brain is the fundamental problem. Recently I picked up a book at the university book-store called ‘Mean-markets and Lizard Brains’. The following is a definition from this book: “Lizard Brain – an ancient, often unconscious thought process that exerts a powerful influence on us. This lizard brain has helped us reproduce, find food, and flourish, but it tends not to work so well when dealing with financial markets.” I haven’t read this book yet, but I really related to this concept. As I’ve watched the recent rise of the Xero share-price, my lizard brain has also urged me to get some before missing out. My rational brain tells me to consider the intrinsic value of Xero and how the recent events or new information have affected this intrinsic value. I haven’t purchased any additional shares in the recent surge, but my lizard brain is very alive and active!

    So I think we are part lizard-brain which makes us want to follow the herd or buy things that are popular or seemingly scarce. We also have a rational part of our brain, and investors such as Warren Buffett have shown that being rational and crushing our lizard brain can reap great returns. The fact that you recognise this and decide to crush your lizard brain in the hope of fantastic returns is surely due to your greed. So maybe Gordon is correct?!

  2. Mm, maybe it is the lizard brain. Although, Im not sure my quest for riches is all about greed though, more like… maximising efficiency. If I have cash to invest, it should be being as efficient as possible. See my next post of Kiva…

    But maybe thats my sneaky lizard brain talking!

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