The Pitfalls Of Emotional Investing

Enjoy a calmer, more serene life

February 23, 2017

The golden rule of investing is buy low, sell high. When markets are volatile it is all too easy to allow dangerous, self-destructive emotions – such as fear, panic, capitulation, even depression – get in the way of an orderly, disciplined investment process.

A study by two professors, Joseph Engelberg and Christopher Parsons, at the University of California at San Diego (UCSD) found a link between falling stock markets and rising hospital admissions for panic attacks and anxiety. California alone experiences about 3,700 stock market-related hospitalizations a year. Engelberg and Parsons also found that a one-day drop in equities of 1.5% leads to an average 0.26% increase in hospital admissions over the next two days.

There’s an old saying in the investment world: ‘Bulls make money. Bears make money. Pigs get slaughtered.’ Pigs are emotional investors who allow their feelings to determine their investment decisions. Our approach at The Michael Fahy Group – disciplined, dispassionate, and coolly objective – is the opposite.

We create structure and restraint around the investment process, safe in the knowledge that one of our closest strategic allies is the pause button.

That is not to say that we are incapable of decisive, rapid action. It means that the investment decisions we take either on behalf of or in consultation with, our clients are based on a long-term agreed strategy. Markets around the world change very quickly and the difference between a below average or above average return can be simply the discipline with which decisions are made. We follow a six-step process that we use with every client:

Step One: Evaluate Goals & Objectives
Step Two: Risk Assessment
Step Three: Investment Policy Statement
Step Four: Portfolio Management
Step Five: Monitor & Evaluate
Step Six: Reporting

The details of this process are covered in full under the Disciplined Portfolio Management section of our website. Don’t forget, your financial needs go far beyond just investments. Durable goals take time and planning – not spontaneous improvisation – to reach. That’s impossible if you let your emotions control how you invest. Better yet, you’ll enjoy a calmer, more serene life.

To find out more about disciplined portfolio management, please contact
Michael Fahy, The Michael Fahy Group, 604 691-7207.