Emotional Discipline is the Most Critical Aspect of Investment Journey

Abstract

When we hear “emotion,” we attach a human experience to terms such as joy, cheerfulness, fear, and anger. From an evolutionary perspective, emotions are considered “rational” as they enhance our chance of survival. For instance, the fear we experience when we see a bush shaking triggers an involuntary response to step back. In most instances, there may be no apparent threat to our life, but in the rare case where a poisonous snake is present in the bush, the response triggered by fear can save our life. While emotional responses benefit us in the wild, they can lead to poor decision-making when transacting in financial markets. Hence, it becomes crucial to act in a disciplined manner so that our emotions don’t trigger actions that reduce our wealth. In the article, I will highlight instances/scenarios where decisions purely based on emotions may be sub-optimal. While the article will not offer any ready-made solutions on how to deal with biases, being aware of the shortcomings of our decision-making process can help us analyze our choices more objectively.