Emotions: Friend or Foe?
Do you understand your emotions? My job as a financial planner is to find ways to help you control your emotions and the ensuing self-defeating actions that can negatively impact your financial potential. Let’s list some emotions that can impact your potential for financial success. These emotions can lead to either a Pollyannaish or a Henny Penny type of reality.
- Euphoria
- Pessimism
- Worry
- Greed
- Fear
- Selfishness
- Overconfidence
- Envy
Euphoria! Our joy and happiness is often built upon the belief that our lives are perfect, we are smarter than most, and the decisions we’ve made have been the right ones. Yet, often the correctness of today’s decision is not determined until tomorrow’s reality is revealed. When Nordstrom raises its prices people tend to buy less, however, when it comes to investing and stock prices rise, people tend to buy more. If we are so smart and always make the right decisions, why do most continue to buy when stock prices are inflated?
Fear! Our fear is often created from things that we do not understand or stories that we’ve been told that contradict our euphoric reality. When Nordstrom has a sale people flock to the store and buy, yet when the stock market has a sale, people get fearful, sell and lose.
We all know that the two scenarios I’ve described above should not be true, yet they are absolutely true and proven in every up and down market we see.
We are emotional animals!
A good dose of pessimistic optimism could help you go a long way. Emotional balance is important when it comes to investing. We need to find a balance between our pessimistic and optimistic sides. This doesn’t mean that life will then be perfect and every decision we make will be the best, but it does mean that our lives will be more steady, and with less missteps and better results in all likelihood.
Mark Matson recently said, “Your fear is other people’s profits”. I believe this 100%. So what is the best way to control our emotions and have true pessimistic optimism with our investing? Have a plan and remember what Warren Buffet once said, “Be greedy when others are fearful, and fearful when others are greedy.”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Stock investing involves risk including potential loss of principal. No strategy ensures success or protects against a loss.
