Emotional Investing: Part One

Prepared by the Hardee Investment Group and RBC Wealth Management

At the Hardee Investment Group, we are firm believers that more often than not, emotions drive our investment decisions. We recently found an article that speaks to this, and we felt compelled to share it with you.

The article’s author, Dr. Kathleen Gurney, developed Financial Psychology and the MoneyMax financial profiling system we often use with our clients. We hope you find this article as enjoyable and enlightening as we have.

Are Your Emotions Managing Your Wealth?

To know and understand the motivating forces behind investing, to know and understand why one investor becomes tense about losses, why one becomes greedy about profits and why one either overreacts or fails to react is, perhaps, more than half the investment battle. There is a high price to pay for the kind of innocence many investors bring to their investments and the way they interact with their investment advisors. Unfortunately, in many cases, to help maximize your clients’ financial returns, you must first help them master their emotions.

Often, bull markets are like blinders. Investors begin to believe in the fantasy that their stocks will always take good care of them and never disappoint them. But, when reality hits and the bull market turns bear, investors can be faced with challenging decisions, and their gut emotions may take over.

In my 27 years of experience, as a psychologist specializing in the psychodynamics of money management and investing, I’ve come to realize that there are certain important relationships which we must understand before we may be able to achieve a consistent degree of success in the world of investing and in the marketplace. The first and foremost of these is that the majority of losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes. Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of stress. So often, investors react wildly to bad news, frequently selling shares of perfectly good stocks – reacting with their emotional money minds rather than their rational ones.

Why is it that some investors may tend to make rational decisions, stick with their choices and strategies while others seem to act out their emotions and make investment decisions that may not lead to profit? Copyright Kathleen Gurney, Ph.D, CEO Financial Psychology Corporation.

Find us in next month’s issue for Part Two to learn some tactics Dr. Gurney uses to help convert emotional investing into rational investing. But in the meantime, why don’t you give us a call at 713-853-0879 or visit us online at www.HardeeInvestmentGroup.com to learn more about the Hardee Investment Group or read other articles written by Will relating to emotional investing.

 This article is provided by H. H. Will Hardee, AWM, a Financial Advisor at RBC Wealth Management’s Houston Center office, and was prepared by or in cooperation with RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice. RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC.