I have been thinking a lot about emotions and how they tend to lead to bad long-term decisions. The part of your brain that processes emotional decisions, mainly the amygdala, is in a completely different location than the pre-frontal cortex that is responsible for cognitive or reasoned decisions.
The way the brain works makes it very hard to be emotional and still make good, reasoned decisions. Add to that the fact that the brain processes negative thoughts at a rate five times greater than positive thoughts. That means that a person can actually be overcome by emotional negative thoughts to a point where there just isn’t any space left for reason to exist. That statement is very powerful.
I, along with many other Mississippians, was thinking about the flag issue in Mississippi this week. For people that believe that our current flag represents their ancestors and a part of our history that they want to preserve; that’s emotional. If they think it will be taken from them; that’s negative. It is no wonder that it has been so hard to counter those points with reason.
It is hard for me to believe that anyone would not want to change a symbol or a mark that makes it more difficult to attract jobs, entertainment and business to our state. It is hard for me to believe that anyone would want a symbol for their business, state or nation that offended an entire race, culture, or creed.
But I see that thought process all the time in my business. The investor who holds onto a stock long after its usefulness because they have owned it for so long or because their father and mother gave it to them even though it no longer resembles the stock their parents owned. The investor that sells a stock out of fear after the market has gone down or the one who buys more of a stock long after it has risen past its intrinsic value because their greed overcame their pre-frontal cortex.
My greatest value in the investment world is to bring reason to decisions that are usually rife with emotion. That’s why our clients have Investment Policy Statements to remind them of what they thought they should do when they were less emotional. Often I ask clients, “If all your money was in cash and you had to invest it today, would you buy so much of this one stock?” Invariably the answer is, “Of course not, but ...”
It is amazing what you can learn about investing from today’s headlines. As for the flag, if we didn’t have a flag and had to start anew, I don’t think we would come up with the one we currently have. If we had an Investment Policy Statement for the State, I can’t imagine that it would include, “Come up with a symbol for the State that offends half of our citizenry, will harm our chance for businesses to invest in our State and for sporting events to play here.”
When reason overcomes emotion that is when investments began to really pay off, which is true if your investments are in the stock market or on top of a flag pole.