The Art Of Emotionally Intelligent Investing

We all know the concept of simple but not easy. It’s the truth to everything worth having; be it relationships or health, and investing is no exception. While acumen helps to simplify concepts, it takes skill to ease the process.

We often approach personal finance as information that is to be learned rather than a skill that must be practiced. Learning the ropes helps; but it only takes you so far. We work for money, but we fail to make it work for us and this is not because we don’t know better; it’s because we don’t feel better. Understanding investment facets does not alter behaviour.

Achieving financial independence takes more than just financial skills. It relies on far subtler but important skills like not making a habit to spend even though we feel entitled to it. The skill here is of making a choice with money. Then there is a saying no to chasing returns and making peace with market volatility skill. These are perhaps the most important skills which investors generally lack. Building these skills not only demand focus and energy, they mandate repetitiveness to the point until you start performing them on auto-pilot.

Procrastination, impulsiveness, laziness and greediness are all emotional problems. These make the task of investing difficult because emotional problems demand assessment of our own behaviour and investor behaviour is rarely driven by logic. Logic and information can influence intent but ultimately feelings determine actions. Since we can’t fool our self, we tie ourselves in confusing web of apps, investment tips and tricks, explore strategies and algorithms when the answers really are within us.

Journey to better investing

Self-awareness and emotional management foster investing skills. Begin with self-inquiry. This will typically trigger defensiveness so be reasonable than rational in your judgements. Embracing reasonability also allows room for more pragmatic choices. Facts and charts demonstrating superior returns from indices and funds hold little significance to psyche and investing habits.

Spend on desires but practice saving even if it’s a small sum. The positive outcome from habits are highly underrated. Indulge your impulses for trading but counterbalance it with professionally managed well-diversified funds. Fetish for jewellery need not be ignored, accumulate for these purchases by investing through gold ETF. Keep it real, make a genuine effort and make it count.

Awareness is key

Investment perceptions and reasoning are never truly objective. A consistent state of self-awareness can temper the influence of cognitive biases that are rooted in past experiences, cultural influences, and societal norms. So, it is important to not just be aware but also dig deeper and understand why we end up losing control of our own thoughts and feelings in the face of these factors? For instance, why do you lean towards negativity often? Could unresolved resentment over some past investing episode be a factor? Or why is there a persistent need to always be right about your choices? Look at the problems clinically to adopt favourable solutions.

Emotional partnership

When it comes to managing emotions, start easy. Facts and figures will only influence decisions. Building habits and changing behaviour require effort. Habits in general respond to cues and rewards. If you have been dodging the savings bullet, shift the focus from the habit to the routine. Get into a routine of budgeting your cashflows. Now, direct your attention to the emotional benefits that come with choices. For example: the feeling of being secure knowing there is money for emergency, the sense of debt-free purchases etc. Make small bargains with yourself.  A psychological hack is to develop implementation intentions. It is nothing but setting for little if/then habits that can unconsciously direct your behaviour. For instance, if you are going to spend on replenishing your wardrobe then make a conditional offer to up your investments by 10% for the next few months. Any negative emotion or shortcoming (be it obsession to time the market or shying away from risk) can be overcome if you open yourself up to a challenge, analyse and adjust to them.

There isn’t a “do X so you can achieve Y and feel Z” formula. Instead, there are only broad guidelines to follow while making money decisions. Through consistent and conscious practice of identifying strong and weak emotions, acknowledging biases, and challenging them, we can hone the much-desired skills to improve our finances.

Sathya P & Rakesh S, Founders, Ascend Financial Inc

Disclaimer

The views are personal and are not part of the Outlook Money editorial Feature.