It may seem paradoxical given Wall Street’s focus on speed, but slowing down can lead to higher investment returns. When decisions are made quickly, the brain relies on System 1. Since System 1 is quick and intuitive, it does not fully analyze the potential outcomes of the action about to be taken. Slowing down increases the odds of invoking the brain’s System 2 and making more thoughtful decisions.
Slowing down can also reduce the emotional component of investing. When feeling stressed or excited, impose a mandatory 15-minute pause before trading. During that period, go for a walk, meditate, take deep breaths or even just watch funny videos—anything to get your mind off what is tugging at your emotions at the exact moment. Then, when you are feeling calmer, sit down and decide the best course of action. Even if you are not feeling nervous, merely taking a few deep breaths and then carefully reviewing your order can reduce errors.
Studies have found that people who don’t watch the news are happier. I would like to say that investors who don’t watch the daily financial noise are probably richer. Or as one advisor suggested, if you must watch the financial news, at least watch it muted. The financial news pushes an urgent and troubling agenda to keep you watching for the latest things you “must” know, causing investors to engage in emotional trading.
But all the best financial wisdom is on the side of removing emotion from the investing process, slowing down, and doing nothing rather than making a big mistake.
If you must do something, I recommend simply writing your fears on paper along with whatever actions you are tempted to take. Then remind yourself to review those fears and potential mistakes six months later. You can implement this idea by putting these thoughts on your future calendar, in a to-do reminder with a future due date, or by sending yourself a delayed email to be sent later. When you receive the reminder, imagine that you had acted on your fears. Most of the time you will be glad you did not.
Long-term investing does not require making quick emotional responses.
This article was written by David John Marotta from Forbes and was legally licensed through the NewsCred publisher network.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally. This material does not constitute a recommendation by BNY Mellon of any kind. The information herein is not intended to provide tax, legal, investment, accounting, financial or other professional advice on any matter, and should not be used or relied upon as such. The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon. BNY Mellon has not independently verified the information contained in this material and makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this material. BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material.