It’s good to get emotional about your investments and it‘s especially good to have an understanding of your emotions when it comes to investing.
This is according to Myeong-Gu Seo, PhD, Univ. of Maryland School of Business. He has done studies on stock trading and is published in the Academy of Management Journal.
According to Dr. Seo,, the higher an investor’s intensity when it comes to investing, the better because that investor is more actively attuned to investing and more aware of the process of investing. Emotion allows one to focus. Those investors who more clearly understand their emotions can regulate them and channel them constructively to get better investment returns. In other words, don’t ignore your emotional reactions when making investment decisions.
All that may sound a little confusing, especially when we’ve been taught not to invest on emotion. “Be cool” . . . that’s been the sage advice by the so-called professionals in this business of investing. The good advice has been, “Don’t sell when stocks have gone way down and you can’t stand to look at the growing losses in your portfolio anymore. It’s probably a good time to actually do some buying.” But emotion rules and you say to yourself, “But it could go lower, so I’m throwing in the towel. I’ll come back when things settle down and the stock market looks better.” Eventually the stock market looks better and stocks have gone up 30% since you sold out. Are you really more comfortable now?
So there’s a difference when discussing investment emotions. In paragraphs 1 and 2 above, all Dr. Seo is pointing out is that higher investment emotion can arouse awareness and focus and can be channeled toward better investment results.
In paragraph 3, it’s pointed out that acting on blind emotion can have negative results. KLD understands emotional differences.
