Normal Psychology?
It’s still an interesting time these days economically, and while it seems much has changed in the world around us, so many things appear to remain the same. Recently I was having a conversation with a business associate about the classic fear versus greed battle that seems to rule all of our emotions, especially in the investing world.
The gist of the conversation centered on what is the greater emotion, fear or greed? What do you think? It’s an interesting study in human nature and it seems that while many are fear-motivated and that seems to be the prevalent emotion we observe and hear about these days, I believe that greed in fact is a more compelling emotion, at least in the world of making money, investing--and television reality shows.
When you are fearful, as most have been recently with the market's significant drops, you are left with a feeling of helplessness. The cliché "misery loves company" has never been more true, and when we hear that our friends are worse off just as we are, it might actually make us feel better. Sad, but true.
Contrast this with greed. Isn’t this the ultra-competitive nature of humanity quantified into money and all things material? When the stock markets rise year after year, people seem to lose control of reason and want to extend themselves way beyond what is prudent or logical. That’s because as their friends are doing better than they are, and the competitive streak, also casually known as “keeping up with the Joneses" sets in, their emotions push them to make decisions that aren’t fiscally sound. Think about extended credit, 125% loans, margin on investments and the TV show Deal or No Deal. What's wrong with taking a risk for the possibility of more?
While it seems that winning $200,000 during your 15 minutes of fame should and would be enough, how many times have people screamed out “No Deal!" when faced with the option of taking the deal and walking or risking more? More often than not. Sure it makes for entertaining television, but if you were there with the crowd yelling at you, would you take the money and run? Remember Fear Factor? This was an even more comical scenario of greed conquering fear. Contestants on that show will do anything for the prize.
So while most if not all would agree that investing in our future and retirement is a huge concern, it seems that people take unnecessary risks and let emotions affect decisions that are better left decided in the absence of emotions. Is this truly possible? Many have asked and I have pondered this myself. Can people really make decisions void of emotion? The answer is probably not. But, you can empower others to make decisions for you to reduce the emotional impact and associated stress.
While no one can make consistent and accurate predictions about what’s next, with the recent rise in consumer confidence and lift in the markets, isn’t this really just normal psychology? Doesn’t everyone want to feel better during a recession? Historically, yes. Doesn’t the economy usually rebound after a severe market crisis? Historically, yes. But won’t people still be greedy when the market returns are higher than the risk free money market rates, like during the last quarter? Yes again.
So while the future still remains to be seen, the past certainly has a way a repeating itself. However, let’s hope that 2008 doesn’t repeat itself anytime soon... “Deal!”
Click here to access the article from the Springfield Business Journal website.
