Stocks involve money and wherever money is involved, the greed factor comes into play. Whether you believe it or not, but each one of us have been greedy for money at one or more times. Some of us have discarded the greed factor from their life and some still are continuing their greed. Let me tell you, greed is never ever good!

Stock Market Greed

Let me give you an example of how the greed factor comes into play in stock market. Suppose you bought a stock at 200 per share. The stock rallies and goes to 250 levels giving you a 25% return. Instead of booking the profits, you hope that the stock will go further up, maybe to 300. The stock instead starts correcting while your hopes are still intact. The stock corrects to 225 or 210 levels erasing all your gains and then you take out the stock in marginal profits. If it was at 250, you should have booked profit instead of keeping high hopes.

Some will argue that this is more of a risk factor than the greed factor. But I disagree, the risk factor was valid the day you bought the stock. You risked your money in a stock which you believed will go above your buying price. But when it had given a nice return already, hoping for further upwards movement was a greed factor, the risk was fruitful, but the greed turned out to be a punishment. Was 25% return so bad?

Personal Experience

Speaking from personal experience, I’ve missed a lot of returns on several stocks due to being greedy and having high hopes. Many times I’ve seen 20% gains coming down to zero, some even dipping into negative. If only I had stopped being greedy and booked my profits on a regular basis, I would have had more money than what I have today. I’ve learnt my lesson now and I book my profits periodically.

My formula To Avoid Greed

You cannot always avoid the greed, but you can lower it down to a level that it doesn’t hurt you bad. Before you decide to buy a stock, set a goal as in a target for yourself. You can even set a global target of certain percentage gain that you would want to book profits at. Lets say if a stock gives you a return of anywhere between 15-25%, you shall book your profits rather being greedy to make more. I’ve set a 20% goal for myself and if my stocks are close to that, I often book my profits.

What if the stock really rallied further?

Big deal, ignore it. If you got a 20% return on your investment, it is good enough. You don’t always have to try to claim a 30-50% return unless you are very sure that the stock is going up. In most cases you can never be sure of that so it is better to keep to your set targets. Whether the stock went up more 10% from the levels you booked profit or not, you still have something decent in your hand and you got that with hardly any work. I believe that something is better than nothing.

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