Let Me Clarify
Recently, I attended a presentation on behavioral finance in Indianapolis. I have a pretty good background in the topic, but find it fascinating and always learn something new. During this session, the speaker mentioned that he disagrees with the idea that poor decisions are made through either fear or greed. Specifically, he believes that these are not separate concepts and greed stems from some underlying fear. At first, I wasn’t on board with that statement, but after thinking it through, I would have to agree.
Let me clarify.
One of the most common fear-driven decisions is making investment choices when the market is down. [We aren’t going to focus on investment concepts here, but rather the fear behind the decisions.] With “fear” in this case relating to a potentially bad short-term panic reaction and “greed” relating to having an unjustified desire for MORE, how can the two be related?
Coincidentally, while stopping to grab food on my drive back from the presentation, I overheard two people next to me talking about a friend’s investment guy warning that attempting to time the market would only hurt them. The person next to me said he responded with, “Hurt me then.” Initial thoughts point in the direction of greed or less investment education, but let’s look at this from the context above.
What if we changed perspective and approached greed as a fear of missing out; or the fear of never having enough? While FOMO is usually associated with social events, I don’t think it’s too hard to link it with the infinite upside potential of investing.
I certainly won’t say that greed does not exist, and it’s not my place to tell you how much money you should or shouldn’t want, but what I’d like you to take away from this is that each of us has our own fears (and I’m not referring to spiders!). What’s important is that we take the time to understand ourselves and the subconscious thoughts that influence the financial decisions we make.
So, the next time you face a decision to double-down, pull out of the market, or anything in between, take a few minutes to collect your thoughts. Gather all the information, think rationally, and don’t let fear alone steer you in one direction or the other.
As we embark on this clarifying journey together, I encourage you to submit any ideas, topics, or questions to firstname.lastname@example.org. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. “Let Me Clarify” is a weekly blog containing Chad Baxter’s insights and thoughts about a variety of topics. To learn more about Chad, click here
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