Investing is a game. At least it feels that way. To humans.
But it’s not always the same game.
When there’s a stock market frenzy it feels like Hungry, Hungry Hippos. (“Everything’s moving! Quick, gobble up positions as fast as you can!”)
When the market is slow, it feels like a game of Risk, all plotting and patience. (“I shall take the region of Kamchatka with the spring thaw and move my forces across the Bering Strait… by rowboat.”)
Today investors are engaged in a different contest. Welcome to the world’s longest running game of Jenga. You know Jenga. It’s the game in which players remove bricks from a tower and place them on top the tower. If it collapses on your turn – you lose. Every move higher erodes the very foundation (psychologically, in the case of “The Market”) on which the tower is built. Every move brings us closer to the inevitable crash.
The Market tower has been built brick by brick for 8+ years now, and its steady, unrelenting climb has created a historically confusing investing environment. Because on one hand, it can’t keep going higher. And on the other hand, it is.
To borrow some concepts from physics – it creates a tremendous amount of potential energy that can be released as kinetic energy. Remember when you were a kid and you would rub a balloon on your head to create static electricity, then “stick” it to the wall? That store of static energy would stay contained until you touched something, the couch, a doorknob… your brother and then ZAP! The energy was discharged with a sudden and painful shock.
This game of Jenga has done the same thing with investors’ emotions. It has generated a massive store of static emotional energy. It’s release is going to zap a lot of investors.
So how do you help the individual players (i.e., investors) discharge all that “static” emotional energy without a painful shock?
The answer depends on his/her unique Investing Personality (IP). MarketPsych Insights assesses critical IP factors via data-backed, reliable personality inventories taken by over 20,000 investors to help financial advisors manage their clients’ emotions, and choose a healthy path.
The wobbly tower behooves us to have conversations with our clients, before (not after) that emotional energy is released. It’s not too late.
(Coming Soon) Part 2: Market Jenga - Three Investing Personality X-Factors Advisors Should Know
“And hey, let’s be careful out there.”
Frank Murtha, Ph.D.