Is It Worth Over-Reacting?

“Neuroticism is the trait disposition to experience negative affects, including anger, anxiety, self‐consciousness, irritability, emotional instability, and depression. Persons with elevated levels of neuroticism respond poorly to environmental stress, interpret ordinary situations as threatening, and can experience minor frustrations as hopelessly overwhelming. Neuroticism is one of the more well established and empirically validated personality trait domains, with a substantial body of research to support its heritability, childhood antecedents, temporal stability across the life span, and universal presence.”

From World Psychiatry

Risk and the future

People in the right side of the distribution behave differently than those in the left side. The high deciles behave very differently from the low deciles. Should a neurotic person be aware of it and design defenses?

I don’t know about everyone, but I do know the highly neurotic group are difficult to deal with in respect to investments. Interpreting ordinary situations as threatening is not an easy way to cope with an ambiguous world. The high neurotic group need someone who can talk them in off the edge periodically.

I have often thought it would be nice to have a reading on this characteristic before advising people.

The advice we give must be advice that matches the persons ability to deal with it in the context of the future world to which it applies. The Know Your Client (KYC) risk profile doesn’t go far enough. I think you can learn a little by asking about how they felt the last time the market fell sharply. If the answer is something along the lines of  I knew it would recover, or I sold everything and bought back in later.

A follow-up question might be when did you buy back in? If at the bottom a different meaning than I waited until it recovered.

Fear is a poor counsellor

Unfortunately for neurotic people the stock market is not a good place for over-vigilance and over responding to perceived risk.

It is not so different in the world as  whole. Wouldn’t it be interesting to discover the people demanding vaccination score high on neuroticism. Would it no be even more interesting if opinion polls were led by that group. Would be a little frightening to have governments a bureaucrats who scored high and tried to react to how the people were viewing risks. I don’t know for a fact but I think most low neurotic people will not participate in opinion polls and surveys.

The media of course feeds on this because emotionally agitated people respond to their narratives more readily than others. The way statistics works is that about a third of the people are easier to connect with than the rest. At the other end of the curve about a third of the people are nearly impossible to connect with.

If you were a corporate or social media company, would a third of the people be an interesting market? I suspect there is no easier market to get to. Is it probable that politicians follow this path too?

I don’t think it would be smart to be lead by people who have inappropriate responses to perceived risk.

Where to go next

There is only one way I know of. Demand that every vivid pronouncement of impending doom be accompanied by objective evidence. The “Show Your Work” part. Neurotics are not stupid. They can follow the evidence as easily as anyone else, but given their proclivity to over-react to risk, objectivity would minimize the inappropriate response. At worst, it would allow them to react to real risks instead of propaganda.

I don’t see how that happens but if everyone demanded it and paid no attention to the conventional presentations, the media, being profit oriented, would find a way to reach the audience. It might be as simple as waiting for the corporate media to lose all their audience. I noticed recently that the “Joe Rogan Experience” podcast has more views in a month than all corporate media combined. I think because there is not so much unchallenged opinion.

The bit to take away

As with everything, the people control the outcomes. You can lead any business or other institution to your way of thinking. It is like all of economics. People respond to incentives and disincentives. If the corporate media is one-sided and often untruthful, dial them out. No viewers means no advertising and that means no money for them. The people control that outcome, and they are beginning to exercise their control.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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