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Dear Quentin,
I have certain personal psychologies and behavior that trip one me up when investing. How do I overcome those? Can you help me with mine? I’m not talking about general mistakes people make like the sunk-cost fallacy, but about personality traits and quirks.
Here’s something I’ve found myself doing in my after-tax accounts usually: I buy a share of a particular stock/ETF and then I don’t buy any more shares until it goes down below the price I bought it.
With my retirement accounts, I don’t have this problem. I just dollar-cost average every two weeks come hell or high water and these accounts have grown significantly over two decades since I’m in it for the long haul.
“‘I have seen some posts talk about people going to therapy for investing/money management, but that seems like overkill.’”
Yet I’m sitting on a large amount of cash not invested because of this behavioral quirk. It’s very intense, maybe half-way to an OCD/addictive trait. To get the “same” fund in case the price takes off, I switch funds and buy another S&P 500
SPX,
fund so my starting price point is higher.
How crazy is that? So I might buy SPDR S&P 500 ETF Trust
SPY,
at some price point and once it goes way above that and less chance of dipping back (by 20% or more) then I buy iShares Core S&P 500 ETF
IVV,
etc.
How does one solve this? I see overlap between investing/trading and addictive behavior, therapy, awareness, higher power, hypnosis etc. are some of the strategies people use.
I have seen some posts talk about people going to therapy for investing/money management, but that seems like overkill. I use the internet (social media) for getting input which sometimes lets me make decisions. The issue is that these are personality quirks, not investment problems.
A related problem for me is that I am afraid of making the wrong decision: I constantly worry about my choices. So I’m like a deer frozen in headlights when it comes to investing.
Deer in the Headlights Trader
Dear Trader,
Whether it’s arranging the spice rack so it’s alphabetical or having a tea and biscuits at 11 a.m. come hell or high water, or in your case obsessively tracking the stock market, people want to bring some order to the chaos and uncertainty that surrounds them. Whatever strategy they employ is an attempt to control something that is — ultimately — beyond our control.
We can’t control the world’s supply-chain problems, inflation rates, the stock market’s wild fluctuations, or the cyclical effects in an economy recovering from a dramatic downturn during a pandemic. Weird habits and obsessive behavior give us the illusion of control. They help us feel safe, but we’re not God, and so we try and try again.
You have to be aware of why you’re doing something, what the payoff is — successful or not — and be willing to do whatever it takes to break the habit, especially if it is slowly eroding your peace of mind, in order to conquer it. By immediately dismissing the idea of therapy, you are putting your obsessive-compulsive behavior above everything else.
“‘Weird habits and obsessive behavior give us the illusion of control. They help us feel safe, but we’re not God, and so we try and try again.’”
Your habits keep you engaged, stimulated, and give you the impression that you have found a way of playing the market. But if it is taking up an unhealthy amount of time and space in your head, ask yourself if it’s worth it, and what you can do about it. There has been some research into stock trading as a pathologically addictive or obsessive-compulsive pastime.
This 2016 paper in the journal Addiction & Health asks questions about whether a person’s trading is problematic or not. Chief among them: Are you involved in compulsive daily trading activity as your main activity in life, and/or as the researchers put it, “having persistent thoughts of reliving past trading experiences, analyzing or planning the next venture?”
The researchers raise other red flags of potentially addictive stock trading: The need to trade with increasing amounts of time and money to achieve the desired feelings of excitement, trading when feeling stressed or anxious/depressed. Loss of interest in previous hobbies and activities, and becoming restless and discontent when attempts are made to cut back.
“‘If it is taking up an unhealthy amount of time or space in your head, ask yourself if it’s worth it, and what you can do about it.’”
The good news: You have not lost huge amounts of money. In fact, your slow and steady approach is the one that has paid off. You also seem self-aware enough to know that your habits — whether or not they are addictive — are encroaching on your daily life and happiness. Investing money should make you feel more secure and more carefree to live your life, not the other way around.
Trading has become easier for millions of people, and it has led to some shocking losses. Take this Russian man who reportedly lost some $50 million day trading, and ended up being sued by his mother. Or this rookie trader who turned $15,000 into $1 million, then lost almost everything. His takeaway from the experience? “It’s like trying to beat the casino.”
Don’t turn your living room into a casino. Your peace of mind seems to be the only thing that’s affected, for now at least. Take action now while you’re ahead. Talk to a financial therapist about what’s going on. The best/worst thing that can happen is that you will learn some fascinating and insightful things about yourself. Let’s face it, you’re far more interesting a puzzle than the stock market.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
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