Opinions expressed by Entrepreneur contributors are their own.
When people think of entrepreneurship and investing, they often focus on numbers and financial calculations. All of this is, of course, an integral part of the business world. However, what I have discovered as a businessman and investor in UK property is a successful business and, ultimately, investing is about people. To be successful, you need to understand people and work well with them—whether they’re customers, partners, or investors.
Understanding human psychology at both the macro level (understanding market trends) and the micro level (understanding the person you are doing business with) is imperative. If you get this right, you can consistently generate superior returns from your business and investments. If you get this wrong or don’t control your own emotions, you can end up losing money when others get rich.
In this article I will go into the different emotional states of the market and the individual players that make it up. I’ll give you strategies that will allow you to benefit from each of them and give you insights that will prepare you to take control of your own emotions.
1. Fear
Fear is a powerful motivator of human action. This is as true of the business, financial and real estate markets as it is of the rest of society. When there is fear in the markets, justified or unjustified, sell-offs occur quickly. This inevitably leads to assets being sold at prices well below their normal value. For those who refuse to give in to fear, there are some great and potentially life-changing opportunities at this time.
Stock market genius Warren Buffett says to “be scared when others are stingyAnd stingy when others are anxious.” Whenever everyone is running for the exit, it’s time to look at assets with a cool, level head. In the real estate industry, for example, pay attention to what kind of real estate cash flow is or could be cash flow. If this number allows you to hold the property for the long term, it doesn’t matter if prices keep falling.
Even when markets are not fearful, every market will have motivated sellers. Motivated sellers want to get rid of their properties quickly. This could be because they are moving abroad or need to sell the property due to the end of a relationship. Your job is to understand their motives and make their life easier by offering them a quick sale. In return, you get the property below market value.
In the business world, you may need to adjust your product offering. This may mean offering cheaper online versions of real products or events. But it can also simply be about realigning existing products. For example, does your product help people protect themselves from uncertain market conditions? How can you emphasize this aspect of your offer in your marketing?
See Also: 5 Fears All Entrepreneurs Face (And How to Overcome Them)
2.Neutral
When the market isn’t moving too quickly in either direction, people tend to have neutral emotions. People don’t typically sell assets very far below their normal price, nor too far above their normal price. There is more time to evaluate deals and both parties to weigh all their options. This can present a challenge for those looking to achieve market-beating deals, either as a buyer or as a seller.
The key in this kind of macro environment is looking at the mic. Just because the market is in no rush to buy or sell doesn’t mean individuals aren’t.
With real estate, for example, regardless of the market, there are still people who need to sell their homes quickly and there are still people who are in a hurry to buy something. In business, this is the time to understand your customers and their needs. In the investment world, it’s a great time to understand the true value of companies and to dig deep into their balance sheets.
Again, it is about understanding people and their psychology. Take the time to talk to the people you do business with and understand their story. If you can work within their schedule, they may be willing to give you a lot. The better you can empathize with others, the better you can create win-win scenarios for everyone involved. Remember that business is always about people.
See also: 8 ways traders can manage their emotions and achieve success
3. Greed
When the market is booming, people experience FOMO (Fear Of Missing Out). This pushes prices much higher than is reasonable.
In the real estate industry, this is a good time to sell or refinance your properties. When you buy, you must control your emotions and only pay for what you consider an asset. Be willing to walk away and consider many deals at once as many will fail.
FOMO is also particularly relevant in the world of bitcoin and cryptocurrency investing. This industry is driven by hype and 4-year market cycles. When everyone else is buying, this is the right time to sell when there is demand. If you buy when everyone else is doing it, you can lose a lot of money in this market.
In conclusion, regardless of market conditions, once you understand: your own psychology; the psychology of the market; and the psychology of your business partners, you can always make money as an entrepreneur or investor!
Related: Should you buy investment property now or wait for a crash?
