“You don’t have to have perfect wisdom to get very rich – just a bit better than average over a long period of time.”
-Charlie Munger
PARADIGM SHIFT
Emotional Intelligence and Investing
The stock market stands at the intersection of fear and greed, ignorance and knowledge, and long- and short-term goals. These six factors are in a tug of war which moves the market, sometimes dramatically and quickly.
The closer we examine any one particular subject (the microcosm), the better we can understand the fuller subject of the whole (the macrocosm). In the same way, I believe the stock market can teach us a lot about ourselves and the world around us.
The stock market is perhaps the most powerful driver of wealth and advancement among an economy that’s ever been created. As a whole, it works magnificently to move otherwise stagnant capital to the most useful sectors of an economy. In this way, it drives the economy forward and carries the investor along with it.
But as renowned investor Ken Fisher likes to call it, the market is also The Great Humiliator.
It uses our human weaknesses against us. Almost everything about success in the market is counterintuitive to how we’re wired to act and react.
At its most basic level, it uses fear and greed as its two main weapons. And both are usually contagious! They compound as the emotions are picked up by more and more individuals.
To become a successful investor, emotional intelligence is key.
But here’s the challenge. Emotion easily disguises itself as logic. And that’s a tremendous illusion to attempt to overcome.
In its simplest form, in order to master the market, and investor must:
· Learn to recognize fear and greed in their own psyche.
· Learn to identify the common biases that work against the average investor.
· Become financially literate.
· Define the end goal, time horizon and preference for risk.
If there’s anything the stock market can teach us about life more generally, it is the virtue of humility and the power of open-mindedness.
The investor with a consistent process based on principles stands to make exponentially more over a lifetime than one which attempts to find the shortcuts.
In the end, if we will let it, the experience of investing can shape us into better individuals as we learn its lessons that can flow over into every other aspect of our lives.