Controlling Bad Investment Impulses

TOM HUDSON: In our series, “Your Mind and Your Money,” produced in association with “Kiplingers Personal Finance” magazine, we’ve been looking at the effect of psychology on our investment decision making. An essential question of the series has been, what can we do to keep our biases and emotions from leading us into poor investing choices? To give us some answers, our guest tonight, Frank Murtha, a consulting psychologist and co- author of the new book, “Marketpsych, How to Manage Fear and Build Your Investor Identity.” Frank, welcome to NIGHTLY BUSINESS REPORT, nice to see you.


HUDSON: It natural for investors to either blame or credit the market when they make profits or lose money. But you say success and failure, its not about the market, its about us. So explain that.

MURTHA: Yes. By far the biggest X factor whether people accumulate wealth is their own behavior. And I think that considering that’s about the only think that we have some control over, it really pays to pay attention and focus on that. The data is out there. Markets do what they do, but regardless of whether its bulls or bears, people tend to under perform because they become reactionary. So managing our own psychology is of paramount importance.

HUDSON: You have some tips on really attacking some of these emotions and some of these pit falls. And it begins with, don’t go it alone. Now, Frank, does that necessarily mean seeking out professional investment advice?

MURTHA: It can. It doesn’t have to mean seeking out professional advice. But at the very least it means involving another trusted person whom you respect in your decision making process. Even if its just to touch base with this person, check in, let them hold up a mirror to ourselves. We talk a lot about self awareness and how important it is to be self aware. Sometimes we need other people to make us aware of ourselves. So by all means, this is a very simple thing that anybody can do and its very practical.

HUDSON: Another tip that you have is think long term. How do we do that when were just inundated with daily information?

MURTHA: You make a good point and part of the answer can be in what you just said. Limiting that information is a great start. Were constantly being drawn into this short-term market based perspective of our investments. Its like gravity. Were not aware of it, were not conscious of it, but its constantly pulling us down. And we have to fight, consciously fight to get out of it.

HUDSON: Another one of the tips that you advise is be self aware. Now, again, how do we put that awareness into use for a profitable portfolio long term?

MURTHA: A great way to do that is to take a look at some of your past investment decisions, particularly ones that didn’t work out the way you wanted to. Review them, review them with somebody else. And take a look and what were the precipitating events? What did I do wrong? When you’re taking that kind of productive approach, you’re going to learn about yourself and you’ll get better at making those decisions consciously.

HUDSON: And finally you advise also to have a crisis plan. Despite everything else weve talked about, how does this plan take shape?

MURTHA: Its all well and good to think of these things in our heads and feel like weve done the work necessary to implement the concepts. Unfortunately its not enough. Im talking about actually getting out a pen and some paper and writing out a plan on when the market goes south. Part of that plan is going to be having healthy coping alternatives, things we can do that are productive. And then lastly finding thing we can do to take advantage of the opportunities. We all know that crisis means opportunity. But the ability to plan ahead and identify what were going to do to turn a negative into a positive is part of how we need to be productive.

HUDSON: Our guest this evening, Frank Murtha, co-author of “Marketpsych,” How to Manage Fear and Build Your Investor Identity.” If youd like to review any part of our “Your Mind and Your Money” series, you can find it on the NBR website

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