Wednesday, December 03, 2008

Investment Sins Part 6 - Anger/Wrath

In this sixth installment of my investment sins series, let's explore the emotion of anger (sometimes also known as "wrath") and how it can screw up our investments. As the saying goes, don't get angry, get even ! There is some truth to this statement as it is basically trying to tell us to calm down and think through the situation in order to identify the optimal solution to be implemented. Anger is an emotion which clouds our judgement and causes us to do impulsive things which we may later regret.

Basically, the book by Maury Fertig talks firstly about the targets of wrath, which is where we, as investors, like to target our anger when something goes wrong. During bear markets (such as the current one) where everyone sees falling prices and gets a sense of helplessness about their investments tanking daily, anger can be a particularly powerful emotion. The problem is that investors generally do not know where to channel this anger constructively and end up blaming i) The Media (for dispensing an endless barrage of bad news which makes markets tank) ii) CEOs (for not managing their companies properly) iii) Financial Analysts (for downgrading their favourite stock) or iv) a Group with a Vested Interest (such as the Federal Reserve which is responsible for the mega bailout plan for auto-makers and financial institutions). Whatever the case, anger which is misplaced often has negative effects for the investor, as it causes him to lose focus and make bad investment decisions.

Next, Mr. Fertig talks about being "normally angry" and being "sinfully angry". Confused ? He goes on to explain the differences between these two terms.

Sinfully Angry

1) Never blames himself for an investment which has gone wrong
2) Always looks for scapegoats to vent his anger upon
3) Makes inpulsive investment decisions (in the heat of the moment)
4) Finds the stock market more stressful and aggravating than other aspects of his life
5) Is only able to relieve angry feelings by making another (impulsive) investment
6) Major investment decisions are often preceded by a bout of anger
7) Views investing as a macho competition where aggressive, instinctive behaviour is rewarded

Normally Angry

1) Upset with himself when he makes an investment loss
2) Avoids blaming others or making excuses when an investment does not work out
3) Allows anger to dissipate before making an investment decision
4) Becomes upset about news and investments, but no more than other aspects of his life which may also be upsetting
5) No correlation or pattern between anger and making an investment
6) Sees investing as a cerebral (thinking) activity which rewards analysis and objectivity and tries to avoid strong emotions such as anger to cloud the decision-making process

The last traits in both sinfully and normally angry should be of note. If one treats investing as a competition or a war, then aggression and anger would probably dominate your thought processes and not allow you to think clearly. By using objective analysis to guide your investment decisions, we can start off from a clear base of thinking and proceed to justify why we should be investing. Even if something goes wrong (and inevitably it does some time in our lives), at least the anger we feel is "normal" and not "sinful".

Although the chapter has other aspects of anger and discuss other important stuff, I will not attempt to "lift" too much from the book, but instead just highlight the more important sections. The final portion I would like to discuss is how we can keep anger out of our investing lives and stay cool. Here are a few suggestions/tips:-

A) Force yourself to take breaks from the investment world and your portfolio

It is good to "take a breather" sometimes and not be overly obsessed with one's investments or the stock market. When things go wrong, we minimize the probability of getting sinfully angry which may occur if we were too emotionally drawn into our investments.

B) Remind yourself that it's business, not personal

We must remember that investing should be done in a business-like manner, with careful thought and analysis. The stock market is not a living breathing person who is "out to get you". So one should avoid feeling as though we need to "take revenge" on the market for playing you out or to settle some personal grudge, because when we take things too personally, we tend to lose sight of the big picture - which is to get a decent return on our investment by owning good companies over the long-term (as a business owner).

C) Keep an Investment Journal

Make a record of all your investments, whether good or bad (a blog is also a good way to do this !). You can track investments you had made and whether they were a result of emotion or a careful thought process. One can also learn from mistakes and prevent anger from building up over "wrong" decisions if one has a good historical record of all decisions made (with supporting reasons of course).

D) Vent your anger productively

Yeah I know this sounds like what psychologists would say ! But the point to note is we can help the anger and frustration to dissipate if we channeled it properly, for example playing a game of football or squash (whack the ball hard !); or perhaps talking/confiding to a friend or loved one about how one feels.

To conclude, anger is a very destructive emotion - just look at how flaring tempers have destroyed families and caused crimes to be committed. The same goes for your investment performance, do NOT let anger destroy your investments - keep a cool head and always be logical and rational.

4 comments:

Anonymous said...

what do u think of tat hong now?

at 0.500 per share.

musicwhiz said...

Hi,

I think enough has been written by me on Tat Hong over the past 2 months, with a 4-part analysis on why I purchased as well as an analytical review of their latest 1H FY 2009 results.

I have a practice of not recommending any particular company. I just review and give my views on the businesses I own. Readers should do their own objective research and come to their own conclusions.

Cheers,
Musicwhiz

PanzerGrenadier said...

Hi Musicwhiz

Besides the traditional fear and greed, my feelings are nowadays numb from the global financial crisis as my portfolio is underwater.

I think those who trade for a living are more susceptible to anger because when they lose in a trade, it's their livelihood affected?

Be well and prosper.

musicwhiz said...

Hello Panzer,

Haha no need to feel numb, just concentrate on making good investments in the current climate, which is actually very conducive for long-term investments. Perceive the glass as half-full rather than half-empty.

I think trading needs a lot more discipline than investing as you are constantly exposed to Mr. Market's mood swings. But that's just my opinion (which you agree with). hehe.

Thanks,
Musicwhiz