We are emotional by nature.
To be objective about emotional situations is nearly impossible for we humans. We were not wired to be emotionless and the owner’s manual is a little thin on what to do about it.
Planning and investing both have a distinct future bias. Most of the time we think we make the connection to our future on purely objective factors. Time, rate of return, small allowance for adversity, optimistic ideas about income prospects, and inflation. That confluence of fuzzy ideas passing as objective reality leads us to poor choices. Pay attention as you go. There will be clues about your mistakes.
Joachim Klement writes daily on investing and economics. I found this one matched my thoughts on why people have difficulty with planning and therefore with investing.
The Virtuous Investor: Rule 6 “Ignore the judgement of others – the only thing that matters is you”
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The point in this piece is you are influenced by what others tell you. Especially so if they are forceful about it. That leads to problems for you in several ways:
We never consuder howcwecwill feel in the future.
“It is difficult to escape the focus of our own attention –difficult to consider what it is we may not be considering– and this is one of the reasons why we so often mispredict our emotional responses to future events.” Dan Gilbert
The effects are well known. People who believe their predictions of the future spend less time looking for their mistakes and more time defending what they predicted. Eventually the situation reaches its breaking point and the pent up emotion takes over. That usually leads to more and even weaker actions. Chaos ensues.
Chaos would be okay if people could learn from it, but they seldom do. Chaos delivers harsh experience and few clues on what would be useful for the future. Chaos can occur both at times of loss and of times of unexpected gain.
Maybe the best investing and planning approach is to use how you feel about what is happening as the guide.
Good advice — “Sell until you sleep.”
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