Fear, Greed, and Pride
Behavioral studies about investing have always interested me. Perhaps it is the challenge of (or futility of) predicting the unpredictable, human behavior. All the studies I have read on the subject end up at the same place. Fear and greed rule! I would add another trait, that of overconfidence, which is born of pride. Fear, greed and pride can turn the most intelligent investor into just another loser. He loses not just money. His whole world view and value system can go down the tubes!
Here at HSC Wealth Advisors, we take the emotional condition of our clients very seriously. In fact, we have adopted the SWAN as our mascot. This is an acronym for “Sleep well at night”. If a client is losing sleep over his/her investments, something is wrong and needs to be fixed.
The other night I reached for the Bible on my bedside table, as I often do to help me relax and fall asleep. As I was thumbing through its pages, I started recalling verses that dealt with fear, greed and pride. The subjects are covered pretty well. Actually very well indeed. Below is a synopsis of my recall (without citing chapter and verse, which can be a little tedious).
Greed is a no-no. Many economists disagree. For them, greed is what powers free market capitalism. The Bible, however, affirms in many passages that we are not to be greedy. Rather, we are to be thankful for what we have. Growth is desirable, but we are not to be in a hurry to achieve it. The Bible would have us act as prudent stewards of what we are given and are indeed to grow it. But patience is also a virtue and we should have lots of it when investing. The Bible also tells us what to do with that growth we achieve, but that is a subject that should be dealt with separately.
Fear as a subject is a bit complex. The type of fear to avoid is panic and terror that leads to irrational behavior. This type of fear simply “goes with the flow”. We are carried along by the crowd. If they sell, we sell; if they buy, we buy. Bad idea. Unfortunately the crowd is inevitably late to the party. They sell too late and buy too early. This is why study after study shows how the return achieved by mutual fund investors is about half of what the mutual fund achieves. Yet, a little fear, born of respect and humility is just what the doctor ordered to attack the third bad emotion of pride.
Pride “goeth before the fall” per the Bible. I have seen that over and over. When the stock market is on a run up, get-rich-quick stories abound. After a while, some folks quit their jobs to become “day traders”. They literally “bet the farm” on their prowess at investing. But stock market rises are inevitably followed by falling markets. Bankruptcies follow. This adage is NOT in the Bible, but is appropriate: “A rising tide raises all swimmers; it is not until the tide recedes that who is swimming naked becomes evident”. Rather than pride, investors need to put on humility. Develop, implement and stick to an investment plan that will grow investments gradually, incrementally buying low and selling high.
So, does God want me to be a good investor? Let’s just say that, if I develop the attributes he encourages in the Bible and avoid the ones He identifies as “sin”, I will be emotionally equipped to be a good investor.
If you read the above carefully and think about it, we still have one major problem. If I experience fear, greed and/or pride, how can I rid myself of them? I attended a marriage seminar at which they taught that feelings were neither good nor bad. They just were! The challenge according to these folks is to react to bad feelings in a non-destructive, non-sinful manner.
I cannot just snap my fingers to put off and put on feelings. What I can do, however, is develop a relationship with and accept the advice of an independent, registered investment advisor who is bound, by law, to act in my best interests. The Bible tells us to seek wise counsel. An individual who seeks out HSC Wealth Advisors is rewarded with diversification, organization and a disciplined plan and portfolio. Our knowledge and accountability as financial advisors help mitigate feelings of fear, greed and pride as we help our clients take the necessary actions to meet their goals and sleep well at night.