Don't let your emotions control your investments

By Rob Schulz

Mansfield Record

I had the opportunity recently to attend a meeting with renowned psychologist Bill Crawford, Ph.D., about how our brains respond to strong emotions. Dr. Crawford explained the brain as having three sections, the lower, middle and high brain regions. The lower brain handles essential functions such as breathing and heart rate. The high brain is where we conduct critical thinking and reasoning, and the middle brain acts as a traffic cop, directing new signals to the other regions for processing.

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He continued that our brain was programmed during dangerous pre-historic times when a strong fight or flight response was critical to our survival. Therefore, our traffic cop middle brain tends to cut off any emotionally charged signals and re-route them back to our lower brain. There are unintended negative consequences in a modern world where complex, emotionally-charged signals are constantly in play with little to no life or death consequences.

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Dr. Crawford says one of the keys to dealing with this response is acknowledging its existence so we can slow down and let our emotions settle. Only then will our middle brain allow the signals to pass to our high brain, where we process them critically and with reason.

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I would further add, another way to deal with this problem is to limit our exposure to signals in the media and elsewhere designed to trigger an emotional response.

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Not long ago, I scheduled a meeting with one of my clients who was very concerned about the future economic outlook to the point that he wanted to liquidate all of his investment holdings. In our meeting, he admitted that he spends a lot of time watching and listening to politically charged and combative media. Over and over, he kept hearing an ad for an investor newsletter that claimed to have iron-clad proof that our entire economy was headed for disaster. The thought of this created great anxiety to the point that he paid for a subscription to the newsletter and started reading it regularly. From there, he was swarmed with emails from other newsletters and financial advisors predicting similar financial disasters.

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He suddenly became utterly immersed in fear of financial loss to the point I couldn't reason with him. Eventually, he moved his account.

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The great investor Walter Schloss, once said, "Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks." In light of Dr. Crawford's explanation of how our brain reacts to emotion, this makes total sense. If our feelings allow our brain to short-circuit itself, the upper brain (where we can process information rationally) never gets a chance to weigh in on the decision.

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To make sound investment decisions, it's best if we limit our exposure to emotionally charged media. Especially these days, our data-mined behavior and preferences generate more and more of the same content and advertising. Before we know it, we are inundated with bad news to the point that rational thinking becomes physically impossible.

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It's a fine line between being informed and being emotionally influenced by the media. Where should the line be drawn? What steps should we take to protect our rational thought?

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Rob Schulz is a local Certified Financial Planner and author of “Thoughts on Things Financial: Your Guide to a Chaotic Money World.” He can be reached at rob.schulz@schulzwealth.com. Buy his book here: https://www.schulzwealth.com/book/

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