Turn and face the future

Interesting article about what makes investors tick from MorningstarAdvisor , a U.S. publication that offers practice management and business building advice to financial advisors.

For months now, people have been abandoning stocks in a kind of slow-motion crash that reveals growing apprehension about what is likely to be a long and deep recession. In short, they’re running scared.

To understand why you have to look at how the “physiology of fear” affects investors, says Deborah Price, founder of the Money Coaching Institute.

The more people listen to the news and replay all the negative information, the more fearful they become. The barrage of bad news triggers the amygdala — that’s the part of the brain that stimulates the fight, flight or freeze response. And that’s where they get into trouble.

People can tolerate this fear, however, if they’re fairly sure the situation is going to end within a specific time frame. That’s how most of us handle roller coasters. We ride them because, on some level, we have a sense of trust and we know the ride is going to end.

Clearly, no one can be sure when this current market situation is going to turn, but we do know that — historically — U.S. recessions have averaged somewhere between eight and 16 months. And we also know that the stock market is a discounting mechanism which historically bottoms well before the end of a recession.

There, feel better?

Gordon Buckland