market emotions

The other day a friend of mine said that the market has her “totally stressed”. She asked me how I cope.

“I’m not worried at all”, I said. “However, when I feel stressed, yoga and deep breathing really help.”

From her eye roll (a very exaggerated one I might add), I could see that Ujjayi yoga breath wasn’t the advice she was looking for.

So, for anyone feeling nervous about the recent market fluctuations, here’s some solid financial advice.

Breathe!

Seriously, take a breath. Don’t act or react. As I’ve mentioned in previous posts, markets always right themselves. Even during the two worst financial periods in recent history (the 1930’s and at the start of this century), stocks still bounced back eventually.

Do the math.

People are loss adverse – multiplied by two. According to Nobel Prize-winning psychologist Daniel Kahneman, loss yields about twice the psychological effect of an equivalent gain.

So, despite the fact that, over time, stocks yield more than they lose, we feel the loss twice as much as the gain.

It makes my left brain hurt.

Back away slowly and don’t make eye contact!

Given that we feel loss twice as strongly as gain, I suggest you avoid loss. Don’t check your portfolio daily. All the ups and downs will cause you more anxiety and prevent you from thinking rationally.

According to an article in the New York Times, checking your portfolio:

• Once a week means facing loss 43.7% of time

• Once a month means facing loss only 40.4 percent of the time

• Once a year means facing only 27.6 percent of the time

So check less often. Stay more peaceful (and more rational).

Don’t talk about it.

Because we feel loss twice as much as we do gain, talking about it with others suffering the same irrational anxiety is more likely to turn you into a psychological mess.

Hanging around the cooler and venting about the market is not self-help. Worse still, you leave yourself open to very bad advice.

Stay informed.

Read the finance section of reputable newspapers. Get educated about capital markets and asset classes.

The more you understand about how investments work, the better you’ll be able to accept, tolerate and manage risk. It’s also the perfect antidote to acting on impulse.

On a final note, you can always call or email us when you’re feeling unsure. We’ll happily talk through your concerns and make you feel at peace again (big eye rolls aside, I still think Ujjayi breathing isn’t such a bad idea!).