How I imagine Alfred Adler would have described investor psychology (1/x)
1. Investors' goal is to show their superiority
- Any drawdown is felt as a threat to their ego, and so they reinforce their belief in their own superiority by doubling down
- Gains are sold in an effort to maintain their self-image of investors who cleverly buy low and sell high
- Any drawdown is felt as a threat to their ego, and so they reinforce their belief in their own superiority by doubling down
- Gains are sold in an effort to maintain their self-image of investors who cleverly buy low and sell high
2. Blaming external events is a way to protect a fragile ego.
If a stock disappoints, you are more likely to blame corporate governance, investor sentiment, the Fed, short-sellers or someone else. Taking full accountability is hard because you'll challenge your identity.
If a stock disappoints, you are more likely to blame corporate governance, investor sentiment, the Fed, short-sellers or someone else. Taking full accountability is hard because you'll challenge your identity.
3. Cynism is also a way to protect your ego.
If everything around you sucks, then surely you are not the one to blame for any adverse outcomes.
If everything around you sucks, then surely you are not the one to blame for any adverse outcomes.
4. Diversification is often used as an excuse as if to say:
"I can do it if I try. But I just want to be prudent".
That way, you won't expose your work and your performance to criticism.
"I can do it if I try. But I just want to be prudent".
That way, you won't expose your work and your performance to criticism.
5. People used to "reward-and-punishment education" take cues from daily stock price moves or peer opinions.
Focus on such feedback causes dopamine swings that can make you lose track of the long-term picture.
Focus on such feedback causes dopamine swings that can make you lose track of the long-term picture.
Adler's anti-dotes
- Think of yourself as a flawed individual with room for improvement
- Accept that some won't approve
- Compare yourself with your ideal self, not others
- Focus on your process, not the outcome
- Ignore past and present, live the moment
- Live below your means
- Think of yourself as a flawed individual with room for improvement
- Accept that some won't approve
- Compare yourself with your ideal self, not others
- Focus on your process, not the outcome
- Ignore past and present, live the moment
- Live below your means
• • •
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