How many times have you wondered what might have been if you’d waited just a bit longer before selling a stock! You punch-in a sale and the price goes up another 5% within the day or you buy a stock when it’s on the rise but it begins to fall just as you get the ownership. Cursed your lack of patience, did you? Well don’t be too harsh yourself, it takes a while and some practice to develop “emotional intelligence”. Yes, Emotional Intelligence (EQ), as a buzzword, has been around for quite some time but the growth in it’s relevance in the investing parlance is relatively new.
EQ is an indicator of confidence. The more confident you are about a company or sector or type of market or asset class, the higher the probability that you will use your IQ for analyzing it, better. Your IQ stems from logic but your EQ has the ability to impact logic and reduce your dependence on it unless you are strong. This is why we tend to prefer (and do well) investing in companies/areas we understand well. Not entirely different from what Warren Buffet recommends. Typical emotions such as over-optimism, skewed sense of probability, prospect theory (assigning more importance to loss than to gain), mimicry, selection bias etc. could lead to misplaced priorities while making decisions.
We are simply at higher EQ levels when we are in our comfort areas. Thing is, how do we replicate this behavioral trait across all of our investment management. So it might be a good idea to make sure we tune our investment process and profile in a way that helps sets us up on a high EQ. And then there are ways to train ourselves towards higher EQ:
- The more we understand the mental make-up of other people, the better we can see through situations of herd mentality.
- Our ability to network with peers and experts gives us better opportunity to evaluate investing instances with holistic knowledge. So, while knowledge helps us build (specific) IQ, it’s our EQ that helps us build networks!
- Patience and motivation in the right measure helps us gather enough information and develop enough understanding to make sure don’t ever stop learning about the investments we are making.
- Ability to tune our emotions in a way that they will have maximum positive impact on our decisions. The better we know ourselves and know how we react to emotional changes, the higher are our chances of becoming more reliant on our IQ.
The upcoming Stockal app takes market sentiments into account like never before done for retail investors. If you are (or are looking to become) an active investor, sign up with us for an early release and we will make sure we send it to you as soon as it goes live. Before everyone else!