Fear, excitement, panic, overconfidence, and paralysis by analysis are just a few mental roadblocks investors face as they participate in the financial markets. When high stakes are on the line, emotions can override our logic, hence leading to many investors making poor decisions.
Our interactions with the markets tend to be toxic in nature due to unresolved emotional pains we have experienced prior to becoming an investor. These flaws can manifest themselves during our most vulnerable times as an investor. If not in check, they could lead to our financial demise.
Financial emotional intelligence is essential to overcoming mental roadblocks toward financial freedom. It takes time, consistency, and realignment or recalibration to set you on the right path. The first step is to look at the market as a counseling session where millions of people are telling their life story. Their behaviors, reactions, and thoughts can all be seen on a candlestick chart, social media post, comments, and news broadcasts -- vividly painting the sentiment of the market's participants.
Just as an asset's price rapidly drops, we can see the panic and overreacting of market participants. News travels fast and, before long, the asset has tanked. Then here comes the guilt. Perhaps some didn’t sell. Maybe some bought the dip, and it went lower. An array of thoughts and emotions can be seen and felt.
Nonetheless, the disciplined investor doesn’t act out of fear nor greed, but from a systematic rules-based system. Does this mean never having a failed investment? Absolutely not. It means the investor is operating from a state of awareness.
When the markets open each day, we figuratively see investors and traders in counseling. The market reveals to them who they are. Investors often enter markets thinking that they are instructing the markets on how to react the way they see fit. That’s not how that works. The market is always right! But as the investor, your real work begins when you leave the counseling session (the markets) and work on yourself.
What did you learn in your counseling session? Are you implementing positive changes? What was revealed about yourself that was previously hidden? Are you self-sabotaging and making the same mistakes over and over again? Are you distracted?
The market is one of the greatest teachers. However, you (the investor) can become the greatest master if you allow the markets to teach you.
May the Horse be with you!
Written by Eric White