The Zen Investor's Bliss
- 3 minutes
In parts one and two of this series, we've been looking at how better managing our reaction(s) to the market can give us a more rational bearing and protect us from the "noise" of emotion-fueled indices and the rhetoric that feeds on them. We wrap with part three, a deeper dive into the challenge, and the winding road to "peace, man" investing.
To begin, here's a question: How would you rate your emotional intelligence? What would those close to you say?
Honestly, if we were to pose the question, our family and friends might be vexed, if not bewildered. You know that blank stare, that goat-eye emptiness; in this case foreseeable, if not warranted. Because the concept, while more common in corporate circles, is one still gaining wider recognition; beyond those of us who, out of need, were paying attention in the late 90s.
It was then that psychologist and science journalist Daniel Goleman published the book Emotional Intelligence, building on and mainstreaming the earlier work of researchers Peter Salovey and John Mayer. Goleman's groundbreaking theory placed emotional intelligence (EQ) over cognitive intelligence (IQ) by 2x as an indicator of overall success*. He defined it, simply, as "the ability to identify, assess and control one's own emotions, the emotion of others, and that of groups." Clearly beneficial in the workplace, but we see how EQ’s enhanced level of self-awareness and self-regulation could help us in every aspect of life—like for us as investors.
For example, most of us have experienced what we call "nervous energy". In Psychology Today's Insight Is 20/20, Dr. Seth Myers writes that "what individuals refer to as nervous energy is clinically known as having elevated or anxious mood. With elevated mood, the individual often feels hyperactive and is propelled to action; with anxious mood, the individual feels nervous, edgy, or uncomfortable." Pot-of-coffee-by-noon notwithstanding, we’ve all been there.
Perhaps recent market conditions had or have some of us feeling a little uneasy. Like when Clevelanders experience a run of clear blue skies or an Indians' (er, Guardians') playoff berth. Sure, we play optimistic. But in our heads, we're off in a corner, rocking back and forth, anxiously waiting for the other shoe to drop. One problem is that we can become inured to it, so the underpinnings often go undetected. Next thing you know, we're in an argument with the seven-year-old neighbor kid about how she's pricing her lemonade. Kids :/
The better self-awareness and -regulation that a higher EQ produces would help us rethink that so-called nervous energy and nuance how we interpret it and manage its effects on our thinking, feelings, and behavior. That's some real power. And as we can imagine, it’s a discipline that takes time and persistence. But why is it worth the effort?
According to Dr. Travis Bradberry, coauthor of Emotional Intelligence 2.0, "emotionally intelligent people separate their thoughts from the facts in order to escape [a] cycle of negativity and move toward a positive, new outlook." That’s a bulwark against big-mouthed market speculation, opinions, or a desperate news cycle that might stoke our fears and incite our imagination; or whatever unsettles us.
Here’s another reason why it might be worth the effort to try. We all experience many and wide-ranging emotions. But, as Bradberry puts it, "it is a select few who can accurately identify them as they occur." The research shows that only 36% of people can do this, which, he continues, "is problematic because unlabeled emotions often go misunderstood, which leads to irrational choices and counterproductive actions." That’s worth reading twice.
Finally, we can likely discern the overarching potential to improve our experience as an investor. With a new and improved EQ in hand, we recite the haiku:
Let bulls and bears play My fear washes over me Never mind the day.
* * *
So far, we learned from Serena Williams’ brand of quiet eye (part 1), the ‘41 Yankees’ steady hand when Joe Dimaggio faltered (part 2), now we’d be remiss if we didn’t reach into the 2020 Olympic games to round out the discussion.
As those games slowly fade from view, we might remember our favorite moment, event, or athlete. The discipline and skill of these competitors can be awe-inspiring. But what is it that nudges them to that next level? It’s their ability to win the often-grueling mental game. All the training and skill in the world cannot easily overcome our psychological frailties.
Ask Simone Biles. Clearly a woman with EQ out the ying-yang. Without it, she wouldn’t have made it to that exceptional level of achievement. And with it, she found the modesty and courage to face unimaginable pressure and stick her final landing, in a spot where few imagined.
We see the parallels. If we’re going to be in the game, we do well to be in the best possible headspace. If we can, it will improve our mood as investors, nurture a less market-performance-dependent state of mind, give us more control over the more important things, and empower us to embrace the competition with its highs, lows, and everything in between. With loss felt less acutely, and wins made that much sweeter.
* When emotional intelligence (EQ) first appeared to the masses, it served as the missing link in a peculiar finding: people with average IQs outperform those with the highest IQs 70% of the time. This anomaly threw a massive wrench into the broadly held assumption that IQ was the sole source of success.