No one enjoys feeling regret, which is why it’s such a powerful motivator. Often how we act in a situation is due to our attempts to avoid regret, which can lead us to make nonsensical decisions out of fear or panic.
As we learnt about loss aversion, acting from fear or panic in investing is a dangerous place to find yourself, because it often leads to irrational decisions that backfire on you. It only takes you to sell your stock too early, and miss out on 20% greater returns. Or to be too hesitant to sell, and your stocks drop way below what you bought it for. Regret, regret, regret. It’s only natural to want to avoid that feeling of regret and minimise the chances of it happening in the future. And so the next time you come to make this kind of decision, your past failure will be playing in the back of your mind, urging you not to make the same mistake.
The problem with regret minimisation is that not all situations are the same and can’t be treated the same, and acting out of fear blocks you from seeing this. That’s why we’ve created a 3 step guide to avoiding regret minimisation and becoming confident in your investments once again.
3 Steps to Avoid Regret Minimisation
1. Evaluate your thoughts
First things first, evaluate your thoughts. Ask yourself why you’re thinking of making, or holding back on, a certain trade. What’s driving you?
This is where you should take a step back and make sure that you aren’t being driven by fear of past failures or regret. Let the panic subside and let your thoughts arrive rationally.
2. Weigh your gut feeling against the research and statistics
Once you’ve taken time to step back and evaluated your thoughts, your gut feeling will pipe up and call you to choose a certain route.
Often, your gut feeling is correct, but here is where it’s important to look back to your research and statistics. As any good investor, you’ll have done research into your stocks that should have given you some hypothesis on the future of these stocks – does this decision fall into line with what your research shows? If the company has taken a sudden plunge or rise, does the research show that it will recover, fall further, rise further, or plateau?
Allow the logic of statistics to affirm or deny your gut feeling, and weigh your thoughts against whatever the metrics are saying.
3. Make the call and don’t look back
Sometimes trades go well, sometimes they don’t. Learn from your mistakes, sure. But sometimes a risk is just a risk, and it doesn’t mean you shouldn’t be in your investment decisions in the future. Try to see where you can learn from your mistake, and then move forward. Don’t dwell on what has passed.
Regret minimisation usually drives you to not invest at all, or to invest very conservatively, both of which are very limiting. That’s why it’s important to evaluate your thoughts, weigh the research, make a firm decision and not look back. By all means, learn from your mistakes, but don’t allow your mistakes to overwhelmingly guide your future strategies.
I hope I’ve helped you understand how to avoid regret minimisation in the future. If you’d like to find out more about which investment strategy is right for you, just download our comparison infographic below.