Five ways to use the psychology of investing to profit

Irrational emotions have a large impact on markets. In this extract from his new book, Matthew Partridge discusses how to curb your own flaws and take advantage of those of others

Man reading a paper on "Black Monday" in 1987
The Black Monday crash in 1987 was a time to buy, not sell
(Image credit: © Georges De Keerle/Getty Images)

One skill that separates good investors from bad investors – and great investors from those who are merely good – is the ability to understand the role that psychology plays in investing. With markets at least partially driven by fear and greed, being aware of your own flaws and controlling your emotions can help you avoid bad investment decisions. What’s more, recognising the same flaws in others can also help alert you to the investment opportunities created by market irrationality. Here are five tips to help you win the “inner game” of investing.

1. Be patient

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri