Emotions and Wall Street

From the article, How to Stop Your Emotions from Wrecking Your Returns in the Wall street Journal this week (Getting Going - WSJ.com)

Make no mistake: Emotions can hurt your investment results. For instance, a
study published in Psychological Science in June 2005 found that people with impaired emotional responses made more-sensible financial decisions.

These folks, who had lesions on their brains that limited their emotional reactions, were more willing to take gambles where the potential payoff easily outweighed the potential loss. "When people with normal emotional reactions lost, they got discouraged and stopped gambling," notes one of the study's authors, George Loewenstein, an economics professor at Carnegie Mellon
University.

Emotions can also help, supplying the motivation to focus on our finances, plan for retirement, save diligently and avoid excessive risk. "Without emotion, we wouldn't be able to make the sort of trade-offs essential to our financial survival," argues Andrew Lo, director of the Massachusetts Institute of Technology's Laboratory for Financial Engineering.

As you might gather, handling our emotions is a juggling act. Intense
emotions can be helpful, making us more engaged in what we are doing. But to be successful, we also need to figure out what's going on with our feelings and then limit the impact, suggests a study in August's Academy of Management Journal.

"People who can pinpoint their emotions are less likely to be affected by them," explains Myeong-Gu Seo, co-author of the study and a management professor at the University of Maryland. This self-knowledge is part of a broader notion sometimes dubbed "emotional intelligence."

"Women have greater emotional intelligence than men," notes John Ameriks, an investment analyst at Vanguard Group.

A few notes here. First of all, according to Reuven Bar-on's exceelent research, women do not have "greater emotional intelligence than men." Men and women actually test the same overal. They vary significantly on how they test on the individual competencies however. If you'd like more information on this, email me at sdunn@susandunn.

And if you'd like to INCREASE YOUR EMOTIONAL INTELLIGENCE, email me at sdunn@susandunn.cc for some coaching. It's what I do.

Emotions and the Stock Market

Applications of Emotional Intelligence, that's what it's all about. And there's nothing more emotional than MONEY.

I came across a blog about understanding the basics of the US stock market. It's called The Bullhunters Guide, referring to the bull market of course, and is to guide people through understanding the basics of the US stock market. Now, in coaching emotional intelligence, I still run in to people who consider it not masculine to "be emotional." As long as we're dealing with stereotypes, isn't the stock market and finances a 'masculine' domain? And isn't the stock market one of the most emotional things out there - hysterical, even. Panic often appears to drive it. That's one of the things stock brokers have to work hard with in clients, especially inexperienced ones.

That having been said, this entry was entitled "Emotional Intelligence," so lets look at what she says. "Funny thing...life," it begins. "Just when you think you have it all together it comes up with another challenge,"

From the article:

If you are a trader already and have money in the stock market then you know how you react or respond when our trades don’t happen the way you want them to. It is just a matter of learning from your trades and not being attached to them... [If you suffer a loss] ... If you happen to react and start kicking and screaming and feeling sorry for yourself, then you have not learned the lesson. If this happens you can make some bad choices.

Rather, if you respond and change the way you view the situation, you will do even better the next time. If you are trading for cashflow, then you really have to have a plan in place. I am not here to advise you on your rules for trading as everyone eventually finds the way it works for them. It’s like learning anything new, you try a system and then tweak it to suit your personality. So its a little like when you are in your car driving along… do you focus on the bugs on the windscreen or on your destination? If you let the little things in life get in the way and focus on the trades that didn’t go your way, that’s what you will keep on getting. Take charge of your emotional intelligence today and focus on your destination with a sense of certainty. You will be a whole lot happier on your journey.

Why did I flash on "dating"?

Read the whole article on The Bullhunters Guide.

Did Warren Buffett Issue A Death Threat

Warren Buffett Issues Death Threat

Well that's an eye-catching headline -- Warren Buffett Issues Death Threat, and I "bit" just like everyone else, I'm sure.

Lots of "lessons" here. If you read the article you will see that Buffett declined to mention stocks he was investing in .. presumably knowing it would change the progress of the stock just by the mention. Presumably true, it being Warren Buffettm oft known as the world's greatest investor. Allegedly he wrote, "I could tell you but then I'd have to kill you."

The article goes on to call it "attention" and to talk about what happens to stocks that are getting "attention."

Of course this "attention" is going to generate emotion, yes?

You might think about this is terms of your home and your office, and in terms of emotional intelligence.

Let's say, for instance, someone makes a "mistake." What sort of attention you pay to this will make a big difference, along with what sort of emotiona you generate around the incident. The person could end up:

--feeling stupid for having made one mistake
--discovering that the way to get attention from you (the boss, the partner, or the parent) is to do something like make a mistake
--they could feel affirmed that you treat the 'mistake' as a small thing, not likely to reoccur and nothing pertaining to the person's ability in general
--the may decide that you are too difficult to work with, because of your extreme reaction to one mistake, and make a note to look elsewhere

ATTENTION is something we all crave. Make sure what you pay attention to brings the results you are looking for. That's part of EQ and part of Intentionality.