Hi all
(As a caveat to all that follows, the human impact of what is happening is horrible. It is never far from my mind right now, and there is a huge amount of suffering happening, and I strongly suspect it is only going to get worse. However, I think it is important to work out how to best manage that tragedy as a society, but also as as an individual, and what we can learn from it)
As I'm a psychologist by training, I've enjoyed reading about behavioural finance since I started researching how to invest, and I've been fascinated by the emotions and arguments I've had with myself over this turbulent time. For my part, I've noticed
- Prospect theory in action. My portfolio of shares I'm willing to buy 'at any price' as I'm sure they can weather the storm is at on average 30% discount from their highs. However, they have bounced on average 30% from their lows. Yet I've 'anchored' to their lowest price. Therefore by buying I'd be 'taking' a 30% loss (which feels twice as bad as my potential 30% gain would), so I don't want to buy
- Confirmation bias. I'm reading the news and various traders blogs that I respect. However as soon as they start to turn bullish, I see myself questioning what they say like I wasn't before. Plus I find myself searching out news stories that agree with me that the market is going to go further down, over those which say the opposite
- I don't know if it is a thing, but I'll call it delegation of responsibility. I find myself wanting to seek the opinion of friends and family who I know are more experienced in investing for me, and part of me wants them to make the call for me - taking away that responsibility for making a call and backing it up with cash.
- My version of 'over trading'. I know to limit my trades, and I'm usually good at that. What I tend to do instead is over-read, over-prepare, and (as is this post) over-write so I feel like I'm doing something. Because doing something means I can exert some control of the situation (and the market)- or so a bit of my brain tells me
What I'm doing to manage these
- Trying to recognise them when they happen - they are becoming so frequent it is getting easier
- Reminding myself that this…
