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Strategy & Planning Updated on: Mar 25, 2023

Fear, Greed, Peer Lending and Machine Learning

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We win and we want more. We lose and we want to win it back. That's how we lose it all.

What’s driving your investment decisions? Fear? Greed? A little bit of both perhaps? At some point, these two emotions will most definitely drive your decisions. Be prepared! Acknowledging and accepting this fact will prevent you from behaving in the stockmarket like you would in a Casino.

The way I see it, you can either take a thermostat approach to invest, or you might as well head straight to the casino and have some fun while you let emotions take control over your hard-earned money. 

Taking a thermostat approach involves trading stocks and other investments using machine learning. Let computers using fine-tuned software to make decisions. Take, for example, the peer-to-peer lending startup company, LendingRobot.com based out of Seattle, WA. They use algorithms to manage your investments in loans at lightning speeds. It also takes care of reinvestment and diversification so you don't have too. It saves people time, money and helps maximize returns.

The casino approach means over-confidently picking investments, thinking you know what you're doing, or even relying on other’s expertise. Have you ever been to a casino and put money into a slot machine? You put money into a machine that’s “hot” or “due for a win”, hoping you’ll be the one to win the jackpot. Emotions are high, so when it doesn’t perform, fear kicks in, and your natural tendency is to play until you win your losses back. However, if it performs well, overconfidence kicks in and greed guides your decisions. Either way, you make emotional decisions. Many people invest in the same way.

I work with a lot of startup companies, which allows me to invest some of my time and money in things I'm involved with and that I understand. I let computers do the rest, and, yes, I let a simple computer maintain the temperature in my home.

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