Mindful money: Keeping the emotion out of action

Lately I’ve been reading about stoicism and the philosophical mindset of a stoic.

When hearing the term stoic, I always imagine a somewhat gruff and grizzled gentleman sitting at the head of a table during the mid-19th century in a wool suit and long beard. His dispatchers would deliver the latest news of the day – good or bad – only to be received with an indifferent nod, as he’d resume making notations in the margins of “War and Peace.”

This is an obvious representation brought on by too many Hollywood movies and my partiality to nostalgic images. Or, perhaps it was all the moments I spent with my grandfather in southern Minnesota. He who would often communicate his responses with a signature grunt and nod. It was a slightly demeaning yet endearing, effective method of communication – allowing for an unadulterated viewing of “Walker, Texas Ranger.”

Whatever the reason for my notion of stoicism, I was obviously only scratching the surface of a unique philosophy. There are obvious advantages and disadvantages to taking on the philosophy of a stoic, as it relates to the general population.

And, of course, behavior is not always something that can be controlled, especially considering the different environments or events to which one is exposed. In summary, a stoic is not necessarily void of emotion, as in my examples.

On the contrary, most stoics have the same feelings or emotions as most others. But at base level, the difference between stoics and the proverbial spitfires of the world is the ability to control the emotional reaction to an external response or stimulus.

When I was a child my dad would say, “Luck favors the prepared.” Which, I now understand to be a paraphrased quote of Louis Pasteur. I’ve come to take this two ways.

The first: An individual putting in the time will make or find their success. The other, and maybe more appropriate in this case: A person who anticipates or calculates different outcomes will be better prepared for the one they are least expecting.

So, for example, if there were an unexpected correction in the market, we should be able to calmly evaluate where we are, what we need and the underlying objective of the portfolio. A more analytical approach would help diminish the prospects of a self-fulfilling prophecy resulting from an emotional move.

It is certainly a challenging task to remove emotion from the financial decision-making process, especially after working many years of building worth, and the unyielding drive of the American spirit to always be moving ahead. That being said, when referring to the whims of the markets as it pertains to account values and investor behavior, by removing personal feelings, markets and individual investment plans tend to operate more efficiently. So often the moves made in an investment portfolio are a result of fear, aggressiveness, greed or apathy.

Regarding preparation, Abraham Lincoln was quoted saying, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” This goes back to a basic understanding any task will likely have a better outcome if we take the time to hone or sharpen the tools we use to complete the job.

Meaning, if along the way, investors take the time to meet periodically and hone the portfolios and accounts to ensure specific objectives are adjusted for appropriate risk tolerance, the reaction to an event should already be accounted for in thorough planning.

Therefore, one always is in the proper allocation and able to withstand most any financial curveball and corresponding emotion – be it a correction, recession or life event.

In reviewing this column, I realized a career in psychology was never in the cards — though I do enjoy the comforts of a chaise lounge and velvet smoking jacket. But, it is easy to see rational behavior is such a key component to making smart decisions — a discussion I have with my daughters on a constant basis.

With investing, in addition to other moments, it is important to remember that a lot of the time emotions can cloud judgment. And, in those situations, it is best to talk things through with a person you trust and know will provide good, sound advice to be in your best interests.

To close, I’ll leave you with one last quote, and sensible words from Jonathan Swift, “A wise person should have money in their head, but not in their heart.”