Financial Psychology

Taking the Fear Out of Investing in a Nervous Market and Staying Your Game Plan

By Kathleen Gurney, Ph.D

Printable Version

Often Bull markets are like blinders. Investors begin to believe in the fantasy that the market and our equity investments will always take good care of us and never disappoint.
Since the “Great Recession”, the market has reinforced such fantasies. It has been a bull market for the past ten years with few exceptions. Recently, we have had the worst few days in years.
So, what’s an investor to do to remain calm, avoid knee-jerk reactions, and prevent emotions from potentially sabotaging all the gains realized in good times by prematurely pulling out of the market when it may not make sense?
In my years of experience, as a psychologist specializing in the psychodynamics of money management and investing, I’ve come to realize that there are certain important relationships which we must understand before we can achieve a consistent degree of success in the world of investing and in the marketplace.
• The first and foremost of these is that most losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes.
• Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of anxiety and stress.
• We can become better and smarter investors by looking at history and developing a sense of perspective. Economic conditions have always fluctuated at previous times of national and global crises, but the underlying strength of the American financial system has always shone through in the long run. Any hardships caused by recent events will not last forever.
• Managing anxiety well during volatile times is a competency of successful investors. We all must be reminded from time to time that not making dramatic financial changes during these nervous market times can be a sign of patience and prudence, not cowardice.
Helping our clients get a current sense of control and clarity is not a bad idea. Helping them step back and see what they can realistically, financially and emotionally afford and then make decisions based on thoughtful reflection vs. impulse. In the long-term they will remember your prudent advice and help during such volatile times.