by: Cameron MacKenzie
We all keep making the same dumb moves: sell into a route, buy at the top, constantly reallocate, chase the market. So many of us keep messing with investments that, if allowed to just sit for a while, would slowly and consistently grow.
This is basic stuff. Everybody’s heard it. We've seen what happens before, so why do we keep making stupid mistakes? Why doesn’t the stuff we learn have a significant impact on our behavior?
This is a big question, and it goes to the heart of investing. It's essentially about the difference between the head and the heart: one part of us has learned from our mistakes, and another part keeps trying to make those same mistakes. So how can we move from knowing something is right to feeling something is right? How do we get our head and our heart on the same team? It sounds like a question for Dr. Freud, but Dr. Freud might very well have an answer.
Freud realized pretty early on that he could tell his patients what their problems were, but once his patients heard his analysis, it didn't change their behavior. Even when his patients knew what was wrong in their thinking, they still continued to think that way.
The good doctor was stuck, until he found a patient that had a huge problem with authority. This poor guy would snap at the slightest provocation. He would turn on people so quickly that he couldn’t stay in a relationship, he couldn't hold down a job, he couldn’t keep any friends.
Freud decided that instead of trying to work around the problem and tell the guy what his trouble was, he should instead dive right into the problem itself. In the therapy sessions, Freud started acting like a jerk–correcting the guy, interrupting him, putting him down and demanding he do ridiculous things until the guy flipped out, right in the middle of a session, shouting and throwing things around Freud's office. But the way he was talking, Freud immediately noticed, was the way a boy would talk to his father.
What Freud had done, in essence, was put himself in the position of authority in order to draw the problems of that relationship to the surface. And then, Freud had a wonderful insight. What if instead of meeting the guy's anger with anger of his own, Freud tried something different? He chose to respond not as the patient's father had always responded, with aggression; Freud responded, instead, with sympathy.
At that moment the patient felt—not knew, but felt—what his problem was, and sensed that there could be another way out. He realized that every relationship wasn't automatically based on conflict, and within a month or two, his behavior began to change.
That's not to say we should all go into therapy, but as I’ve said before, a relationship with money is never about money–it’s about what’s being expressed through the money. If we can watch what our emotions do when we get grumpy with our spouse for ordering the expensive wine at the restaurant, or when we fire off passive aggressive emails to our brokers, or when we watch the ticker on Tesla rise and fall all day and blame ourselves for not getting in or out at the perfect moment–if we can put a little bit of distance between what we feel and what we do, we can begin to try to understand where those emotions come from.
We can, in essence, start to get a handle on that old knot at the bottom of us that’s making us do dumb things. It’s tough, but if we want our head to take a little pressure off our heart, it's not a bad place to start.
Opinions expressed here are those of the author and not necessarily those of SagePoint Financial, Inc.