Emotions Are Stronger Than Reason
“Emotions can get in the way or get you on the way.”
— Mavis Mazhura
Most people who manage their own investment decisions are relying more on emotions than reason, even if that is not their intention.
It’s a hidden dynamic that influences all of us.
Ironically, a huge component of successful investment management is actually emotional management.
This becomes most visible during market swings.
When our account values rise, we feel smarter. Our biases get stronger. We ignore risks. We don’t feel any fear. The future feels predictable. Some of us may even think that we’ve ‘cracked the code’.
And of course, the opposite can happen even quicker and with greater magnitude when our accounts fall.
Uncertainty & fear grows to irrational levels. We see risk everywhere. The system feels broken. Selling investments feels necessary. Some of us may even worry that the world will never be the same.
Both emotional extremes are usually overblown. And acting on those emotions is usually the worst strategy.
Most of the time, there’s nothing to worry about for the long run.
Zooming out—both mentally and literally—can be one of the most effective strategies available. Not because it changes the markets, but because it changes how well we respond to them.
The more often we check our accounts, the more we invite emotion into the decision-making process. Every fluctuation feels scary. Every headline feels concerning.
In fact, if you already have a well-diversified portfolio, you might be best served by just setting it and forgetting it.
Real financial planning for real life.
Riverbend is a fee-only, fiduciary advisor. Our plans are personal, shaped by your values and designed to help you build a full life.
Who We AreThe History and The Math support the ‘Buy-And-Hold’ approach when measuring it versus ‘Market Timing’.
Most of us are not able to maximize every potential opportunity. What we CAN do very successfully is to avoid unnecessary mistakes. And that’s really all it takes to win this game.
The investors who tend to do the best over time don’t eliminate emotions entirely. They simply learn how to respond appropriately when those emotions arise.
- They understand when their biases are influencing their opinions.
- They remember the timeless principles that got them this far.
- They embrace humility, patience, & discipline.
- They don’t let their emotions outvote their reason.
- They let their money do its job in the background, while they focus on the other aspects of life that matter most.
