Fisher Investments Reviews Why Emotional Investment Decisions Can Be Costly

Transcript

Ken Fisher:

So, human psychology varies by person hugely. And in my over half a century of dealing with investors, I've come to learn that some people are just going to be unable to control their emotions. And the only thing you can do if that's the case is avoidance. And by avoidance, what I mean is, when you get emotional, go do something else. Don't let your emotions lead you to action. If you're really emotional, you're almost always doing the wrong thing in the marketplace. The marketplace is a place where emotions, your emotions, are always your enemy. Fear is in marketplaces rarely encountered by most people when not encountered by most other people, which puts the fear already into the marketplace and has it already priced.

The fact is, few of us, regardless of how emotional we are—a lot or a little— actually are having those fears based on things that are truly unique and different from the things that most other people have exposure to and react to. The rational question is, when you're emotional— which is never well answered, emotionally—what is it that I know that other people don't know? Which is actually the fundamental core question, the theoretical basis for making any trade in capital markets. And most of the time, the answer for most of us is, we don't know anything that other people don't know.

So therefore, no action at that moment in time is actually the right thing to do. What I'm trying to say to you is if you feel emotionally compelled to do something, you probably shouldn't. If you feel overall emotional about what the market is doing, either love it or hate it, the best thing you can do is go do something that occupies your mind, that takes your mind off of all things that are related to the market. What could that be?

Well, it depends on who you are. If I was in my 20s again, I'd probably want to do some kind of vigorous physical thing, because that keeps your mind from doing very much while you're busy doing the vigorous physical thing. When you're older, it might be just simply going and making a point to talk to somebody about something that you know pretty well, that has nothing to do with markets and focusing on that or watching a comedy not something like going fishing, which allows you to think for a long time in a slow moving activity, but something that's more fast paced. But my point is, I can't speak to you individually on this.

Everyone's emotional reaction factor is unique to them and what you need to learn to do, whoever you are, is to learn that you shouldn't base decisions based on emotions, and your analytical mind is often prone to be overwhelmed by your emotions and think you're acting rationally when you're actually acting emotionally. And you can see that really easily in other people. You can see when other people think they're being rational, but are evidencing clearly that they're being driven by their emotion.

The key is to somehow learn to see that in yourself enough to slow yourself down so you don't take actions that hurt yourself? Because almost always, if you act in the marketplace on emotion, you'll end up hurting yourself, not helping yourself. I don't know if this video is useful to you at all. Emotions are about the hardest thing in the world for me to know how to coach you on. But I wish you luck with that and I hope you found this. I hope you found this useful and if not, better luck listening to another one of my visuals another time. Thank you so much.

Voice of Ken Fisher:

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