November 13, 2014
I am sharing an article by Rob Pivnick, investor, entrepreneur, in-house counsel for a Wall Street investment bank and financial literacy advocate. I got to know Rob when I read his recent book, What All Kids (and adults too) Should Know About… Saving & Investing. He first developed the book for his own kids, and I think it can help junior and high school-age kids start to learn the value of investing. Rob has also written an article about the fears I’ve seen some investors struggle with, and how our fears can cause us to make bad and costly decisions. It begins in this newsletter and continues in its entirety on my website. I hope you enjoy it.
The Market is Attacking You. It is Not a Bull or a Bear. But Do Not Fight Back. It’s a tiger. Or maybe a lion or a wolf. It’s bearing its fangs and growling terrifyingly. Predator saliva is dripping from those fangs, mixed in with remains of its last hapless victim. You are a caveman or a hunter from tens of thousands of years ago. Your life is at stake. What do you do? Fight or flight?
Your brain’s hypothalamus is in overdrive with your nervous system and adrenal-cortical system. You are sweating and trembling. Your hands shake. Muscles tense. Pupils dilate. Your body is processing the danger at lightning speed as it becomes more alert, releasing adrenaline into your bloodstream. Your heart rate and blood pressure increase. Non-essential systems (like digestive and immune) shut down so you can better focus on the danger. Several dozens of hormones are released to prepare you to deal with the threat. You must do something. Or you could die.
It is the same bodily response that occurs when you awake in the middle of the night to the crash of a window breaking in your home – a burglar. Do something.
And, surprisingly, a similar response occurs in your body when the stock market has a really bad day. Behavioral finance experts call it “myopic loss aversion” -the “fight or flight” in the investor world. It is what causes most investors to “do something” instead of making sound decisions to stick to their long term plan. Instead of fangs and growling, investors see their long-term plan. Instead of fangs and growling, investors see their goals and dreams vanishing. Early retirement and vacation home… gone. College savings…vanished. Click here to continue.
I am in Orlando this week for the American Indian Science and Engineering Society’s National Conference. I’ll be addressing 100 professional engineers and scientists for two hours, and then making two one-hour presentations to college students in these industries. AISES has awarded many thousands of scholarships over the years, supporting young Native Americans in the sciences and engineering. I am honored to be part of this and will be giving away 100 copies of Financial Fitness Forever.
To your success,