The Thrill of the Flight
THE THRILL OF THE FLIGHT BEGINS WITH THE THRILL OF FALLING
By Richard Gayton, CEO & Founder, Lakeside Virtual Family Office
Imagine the eagle chick being pushed out of the nest by its mother for the first time. The baby chick is probably terrified at first but finds its wings and begins to soar. Behavioral Financial theorists observe similar traits in most human investors. Most of us are terrified to fall during Bear Markets and can’t help but sell it at the lows. Conversely, most of us love to soar during Bull Markets and can’t help but to buy high. How we behave under stress can help reduce risks and losses or compound them. I call this kind of behavior “investment discipline.”
When we suffer a financial loss a bodily reaction is triggered, called the “fight or flight” response. Originally discovered by the Harvard physiologist Walter Cannon (1871 – 1945), this response is apparently hard-wired into our brains and is supposed to protect us from harm. The problem is that the fight or flight response is utterly opposed to common sense in investing. The response has lead many down the path of predictably irrational behavior that compels many to buy high and sell low, over and over again.
Will Rodgers said, “Even if you’re on the right path you’ll get run over if you just sit there.” It’s my opinion that investment disciplines lead one to the right investments as well as steer one away from the wrong investments. But which disciplines should you follow?
You can turn to professional advisors, analysts and portfolio managers, however, many of them also suffer from predictably irrational behavior. For instance, Wall Street analysts statistically have more “Buy” ratings when prices are high and more “Sell” ratings when prices are low. Ralph Waldo Emerson stated, “It is one of the most beautiful compensations of life that no man can sincerely try to help another without helping himself.”
I propose to help myself and others by vowing to buy when prices are low and to sell or hedge when prices are high.
Richard Gayton’s blogs offer timeless advice on how one can avoid common mistakes in investing. This is the trademark of how Richard and Lakeside Virtual Family Office map out a strategy to protect their clients’ wealth. For more information, please visit: www.lakesidevfo.com.