Understanding Emotions in Stress

Understanding Emotions in Stress

Dear Valued Clients,

As we write to you this week, we are mindful of the brutal reality we are all facing as we do our part to stay safe, socially distance from one another, and manage our emotions around the COVID-19 virus. Separating thoughts from feelings during a pandemic like this is difficult for us all – so much so that our StratWealth team wishes to explain how emotions, during a time like this, affect us.

But first, and most importantly, we want to check-in to ensure you and your loved ones are all doing well. We can assure you that everyone from the StratWealth team is safely operating from home, and at the time of writing, our widely spread family is all healthy. We hope the same is true for you and yours!

Importantly, our offices in Maple Lawn, Annapolis and Salisbury will remain locked as we do our part to ‘flatten the curve’. We now anticipate holding to this virtual, phone, and web-based approach throughout April. We all miss being in the same room together, but let’s be very clear – our StratWealth team can perform every function for you (and newly referred clients) without skipping a beat. In fact, just the other day we posted almost 1,000 quarterly Empowered Investor reports for all clients, delivered on time and without issue. If you would like to read the Economic Commentary & Outlook that was part of your report, please click https://www.strat-wealth.com/march-2020-quarterly-commentary/.

We are paying close attention to the details surrounding COVID-19, and the Government’s move to help families and businesses through this period.  Many folks are impacted as we enter another week of the ‘stay at home’ order. Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID-19 pandemic. At a cost of +$2 trillion, economists have stated that this is the single-biggest economic relief package in American history. According to Congress, 94% of taxpayers will be eligible for a stimulus check of some amount.

Today, capital markets are responding to all types of news (some good and some bad), and we expect to experience continued market volatility as we work through the pandemic. These recent events are unlike anything in our past – our strong economy has been suddenly sideswiped by a virus and we believe the economy will rebound once we are past COVID-19. We must try to remain calm and control any moments of high emotion or panic.

Let’s talk briefly about emotions, shall we? It’s important because markets move up and down – and so do our emotions. Too often our emotions influence investment decisions, and most often our brain is not being rational.

During times of market volatility, like we have now, mixed with the present health scare of COVID-19, the brain goes to work big time! Emotions, many involuntary, are triggered. Volatility doesn’t necessarily cause loss, but our reaction to volatility may. (Perhaps read that line again. It’s central to the study and research of Behavioral Finance).

Our human reaction to volatility is caused by the part of our brain’s physiology triggered by a message that says, “Get to safety! Sell!”. It’s the fight-or-flight response that happens in a split second, and it’s a reflex that has been protecting us since the beginning of time. Seeing market volatility is no different than seeing a car travelling at you as you cross the road – we jump out of the way and we don’t think about it. We simply react! The same part of the brain which triggers us to jump away from a car is the same part that fires up when we experience financial loss. The brain thinks there is no tomorrow and, when it comes to financial decisions, it overestimates the risk and believes, “It’s only going to get worse.” It feels natural to jump … like scratching a mosquito bite – it feels good, but it’s not the best reaction.

Source: Forbes.com – The 14 Stages of Emotion and Trading Psychology

The bigger issue is that we experience these emotions (of thrill or fear) at precisely the wrong time of the cycle. The brain tells us to buy when markets are high and sell when markets are in decline.  This is in stark opposition to the cardinal rule of investing: buy low, sell high.  The above graphic illustrates the cycle of market emotions.  Presently, many of us may feel ‘desperation’ or ‘panic’ (as indicated on the diagram above).

The prefrontal cortex is a part of our brain that has evolved in humans over centuries, allowing us to plan. Unlike the part of our brain that is reactionary, and disconnected to executive functioning, we rely on this prefrontal cortex as our ‘thinking brain’ – using it for logic, thinking ahead, problem solving, and concentration. Frankly, it was this part of the brain that told you to engage StratWealth!

StratWealth understands that volatility in the market creates stress. People view stress as a negative force. But stress, when you have an Advisor and a plan, allows us to use our ‘thinking brain’. We are all wired to avoid loss: StratWealth has a contempt for loss!  That’s why we built your portfolio using a basket of investments and a range of tools or managers designed intentionally to try and minimize risk, while maximizing the success of your specific plan.

This is complex stuff, but the bottom line is this: Panic under stress is not a strategy – so don’t be fooled by your emotions. If, however, you do feel stressed and your emotions are telling you to ‘jump’ our message is DON’T … please call us first to discuss your concerns!

In closing, we promised to stay in touch during these challenging times and to share our views to help you through this crisis. We hope we have achieved this! We are here for you and if you have any questions or would like to know more about the study of behavioral finance, please reach out to anyone at StratWealth and we can guide you to some resources.

Stay safe. Stay active. Stay optimistic.


The StratWealth Team