For someone who never shuts up, you may be surprised that I get frustrated at my ability to communicate. These days that really hits home when I’m trying to explain to clients why selling all their investments due to stock market volatility is a bad idea. Waiting for things to get better is a bad idea. Market timing is a bad idea. To you, it sounds like a broken record singing blah, blah, blah.
It’s not like I don’t understand fear of the stock market. Brain research has shown that our decision making takes place overwhelmingly in the emotional parts of our brains (the amygdala in the case of investments). The logical, analytical part of our brain (the pre-frontal cortex) spends much of its energy, not in calmly weighing the options, but in justifying whatever the emotional part wants to do.
Don’t believe me? Read political Facebook arguments for 5 minutes and you will see that phenomenon in action.
This is why it’s nearly impossible to change someone’s mind about their vote, pro-life/pro-choice stance, a higher power, or what to have for dinner.
Another fun fact about the brain is how physically tiring it is to change our minds. It’s easier to change a tire. Our brains, while only taking up 2% of our body weight, consume 20% of our bodies’ energy. * And changing our beliefs, habits or perceptions takes is really hard work on our poor little noodles. Physiologically, our brains crave the status quo. They want to conserve energy to respond to emergencies (hoarding toilet paper for a pandemic, for example). **
I am no different. So, thank you for understanding that, while I want to make you happy about our conversations so that you will come back for more, I just can’t change my mind that getting out of the market because your amygdala says so is a poor investment decision. It’s just too tiring.
And no matter how powerfully I want to, I’ll never be able to call a market bottom and tell you when to get back in. With investing, if you don’t withstand the pain, you will miss the gains. Your brain doesn’t like that, but it’s just how it is.
**https://theemotionalinvestor.org/challenges-of-applying-behavioral-finance-for-a-financial-planner/
