Vincent’s Blog: Your fear of investing is expensive

It is a rainy dark-grey day and the beginning of a long volatile week. The computer screens are full of flickering numbers and I feel the pressure to make an investment decision. My cash is loosing purchasing power sitting in the bank and I know I have to take action. But I cannot seem to move myself, not an inch… All around the world prices of equity markets are moving up and down in a perpetual volatile dance between greed and fear. Random words in the headlines full of negativity hit my eyeballs: escalating, war, terrorism, debt, bubble, exit, no-liquidity, overvalued, extremism, rate-rise, unemployment, market correction… Words that fuel my investment fear, originating fast and strong signals from a region in my brain that has been there from day one of our existence as mankind, a region called the Amygdala. This is our emotional command center steering our reactions on fear. Its signals travel with a speed of 270 miles per hour, beating signals from another part of my brain, which developed much later and can cope with fear and panic more rationally. The result is no action at all. I am like perpetual frozen ice. Oh well better book that next vacation, much more fun to focus on, am I right?

This is not the only signal that competes through speed in a network. If I ever were to thaw and touch the <Enter> button to initiate an investment, a signal would blast away from my office in New York to New Jersey where a heavily guarded center regroups all orders and then sends them on to another exchange in Chicago. The signal would carry information about my order. In his book “Flash Boys” Michael Lewis describes how orders traveling from New Jersey on a private dedicated fiber optic cable would travel faster to Chicago than all others offered on the big communication companies networks and so beating all other orders “traveling” in the system. A few milliseconds might not seem much to you, but when we all hit the panic button it makes a difference, believe me.

So how do I deal best with my fear of investing? How can I move myself to invest my cash at a time that seems so unsure, filled with negative sentiment? Hey, did you just say something to yourself? Did I hear you say it takes too much effort to invest? I was talking, so stop interfering with me. By the way did you know an average person talks to her/himself at a rate of 300-500 words per minute, 20X faster than talking live and that the conversations are mostly negative? That is a lot of negative babble my friends.

So self-talk positive, it pays! Set realistic goals for yourself: quick fixes and big numbers are hardly sustainable; small numbers do add up over time. Forget trying to become world champion of investment performance. Go over different market scenarios and define the boundaries of what you are willing to lose, expecting to win and last check your signals of arousal and check them often. We all get easily excited by a great promise, but fear to lose money the most. We often end up doing nothing at all. If we do invest, we tend to make suboptimal decisions driven by fear and panic. Breathe slowly and wait for the second wave of signals from the trained region of your brain. It might well prevent you from making emotional decisions you could regret.