Intellect Verses Emotion
For years we have been telling our clients that investing
involves a conflict between intellect and
emotion. When the markets are doing well you feel real
good and your emotions say you want to get in on the good markets. At the same time, your intellect tells you
things are looking too good, be careful.
When the markets are doing poorly and news is bad, your intellect tells
you that this is probably the time to be buying. Unfortunately, your emotions are filled with
doom and gloom and you are reluctant to jump into anything as long as the news
is bad.
To be a successful investor you can’t let your emotions
override your intellect. While the
concept seems pretty logical, it can be extremely difficult to put into
practice. Now there’s a scientific study
which concludes we may have been right all along (probably funded by a
government grant). The study, published
in June in the journal Psychological Science, was conducted by a team of
researchers from
In this study of investors’ behavior 41 people with normal
IQs were asked to play a simple investment game. Fifteen people in the group had suffered
lesions on the areas of the brain that affect emotions. The result was that those with the brain
damage outperformed those without.
The scientists found emotions led some of the group to avoid
risks even when the potential benefits far outweighed the losses, a phenomenon
known as myopic loss aversion. One of
the researchers, Antione Bechara,
an associate professor of neurology at the
So when certain investment sectors are making headlines,
such as right now with real estate, gold, oil, and gas and your emotions are
telling you to get in on these hot markets, maybe it’s time to listen to your
intellect. Ask yourself: Is this a time to be cautious? Have these markets had their run? Will they be peaking in the near future?
If you feel you are not participating in those hot sectors
and would like to learn more about a conservative strategy to do so, one that we use with many of our clients, just give us a
call.
P.S. Our new office is
moving along nicely. Our target move in
date is the middle of January. If you
know anyone interested in a good Broadway location or used office furniture
and/or equipment, please have them contact Donna Walker at 884-7550.