Business and Finance
Ian Winer is an investor, philosopher, humanitarian, writer and public speaker who connects people to the truth of market places and human behavior. Ian is the author of the book, Ubiquitous Relativity: My Truth is Not the Truth. A regular contributor to CNBC, Fox Business, The Wall Street Journal, Bloomberg, and Reuters, to name just a few, he is known for seeking connections through non consensus thinking and making it relatable to everyone.
22 years on Wall Street managing money. I made many different mistakes, but almost all of them had a common thread: They were based on fear and emotion.
What are some strategies to deal with anxiety? As it relates to anxiety over investments, it is hard to give one fast rule as each person reacts to similar situations differently. I think a good baseline idea is to really think long and hard about your risk vs. reward threshold. To use the parlance of baseball, some people are comfortable simply trying to get on base and others like to swing for the fences. I have a section in my book on this topic. The bottom line, is that there is rarely, if ever, any investment that is risk free and has guaranteed returns. I like to ask: What is the investor comfortable losing in a worst case scenario? The investment portfolio should be constructed so as never to breach that level. That helps relieve anxiety. I advise people not to talk too much to others about their investments. Oftentimes, we talk to others and hear about their successes (real or fabricated) and feel like we are missing something. This can lead to anxiety. The other analogy I use which I think is probably the most accurate when it comes to investing is the anxiety in a casino. Imagine for a second if I told someone to go stand in the middle of a casino for hours and not play any games. Imagine standing there, hearing the sounds of the machines, seeing the hugs people give each other after winning at the craps table and yet, just stand there. The fear of missing out on a chance to win creates enormous anxiety. So turn off the TV and don't consume yourself with investment newsletters. The biggest mistakes I made over the years from investing were usually based on irrational decisions made on emotion alone. How should investors protect their downside during a market downturn? There are a variety of ways to protect ones downside. First, as mentioned above, one must establish what is their maximum downside amount? If I invest $100k in various assets and can't lose more than $50k, then I need to construct a portfolio for that risk / reward skew so that in the event of anything, short of the end of the world, I can lose no more than $50k. Second, there is always instilling discipline. This is never an easy thing to do but basically it plays into the point above. If you have $100k, but can only lose $50k, then make sure if you get to that threshold you "stop yourself out." and accept your losses. Like the casino, If I go in and say I am not going to lose more than $100 and then I lose $100, I need to leave the casino. I do not go to the ATM and get more money to "try to make it back." Stock investing is not a pure comparable but the mentality is the same as it relates to losses. There are plenty of complicated ways to "protect your downside" (i.e sell stocks short, hedge your bets, Buy Put Options, etc.) but for the average investor, these are to be avoided because of their complexity. Instead, simply focus on a reasonable amount of losses you are comfortable will not cause massive issues for you. You will most likely be unhappy, but you won't lose everything. How do you suggest investors resist the temptation to sell? TURN OFF THE TV! Do not have an "app" on your phone that has the prices minute by minute of your investments. The more you are inundated with "noise" the more likely you are to make irrational decisions. The TV loves emotion and action because that is good for ratings, but it is not good for decision making. Athletes are successful when they are in "the zone" and are able to filter out "the noise." Investors need to do the same. I find the less I look at my investments, the less anxiety I have and as long as I understand the risks, I find that I avoid making irrational decisions like selling at the bottom. How do you avoid panicking? To be fair, sometimes panicking is a good thing. But, if you mean avoiding irrational behavior I think the key is a combination of everything I talked about above. Panicking usually happens when we lack preparation for a situation. So if we prepare for the storm, by understanding the risks, then when the storm comes we will be less likely to panic.
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