If you’re active in the financial markets, you’ve probably heard these admonitions more than once. . .
“Hope is not a strategy.”
“Investors who use ‘buy and hope’ as their only strategy are asking to lose money.”
While the human emotion hope is a wonderful part of our lives outside of the stock market, most of us who are active in the financial world shun “feel good” emotions, as unnecessary, and even harmful. After all, choosing the right equities for our portfolios is serious business. We need to use logical, rational, analytical thinking. Not hope. Right?
True enough. Buying a stock on the basis of hope–because your dentist’s brother is sure it will rocket to the moon by next Friday–is wishful thinking, and you could lose money doing so.
But, what if we looked at “hope” at a slightly different angle? What if we turned inward (inside ourselves) instead of outward (the stock market)? And what if we considered the term constructive optimism? Finally, what if I told you that weaving constructive optimism throughout your thoughts and actions is a valid and scientific way of being more successful in the financial markets?
Constructive: You continue to build a foundation of financial knowledge of how the market works, the basics of choosing stocks, and sensible risk management tactics.
Optimism: You use optimism as the fuel that propels your overall thought strategies as you seek to achieve your financial goals.
End game: You may not be optimistic about the market moving higher, but you are constructively optimistic about your ability to operate effectively in any market environment.
Let’s look at the incredible power of the brain using optimism:
- A group of researchers found that terminally ill cancer patients who were optimistic lived longer after receiving radiology treatments than those who were not.
- A study with elderly subjects showed evidence that a low level of optimism led to unhealthy behavioral choices and as a result, an increased risk of cardiovascular death.
- A study of first year law students revealed that those who maintained an optimistic mindset made more money ten years later than those who remained neutral or negative.
With all this in mind, let’s turn to the current market environment. Interest rates are rising, which can pressure equities lower. Added to that, we are facing three, maybe four potential interest rate hikes this year. Inflation is also raising its ugly head. What’s more, despite the recent rally off the recent volatile lows, our present bull market is long-of-tooth, and many analysts say current valuations are too high to maintain the present uptrend. North Korea continues to expand its militarism, which may—at some point—cause our market angst.
In fact, we market players could list lots of reasons to form a negative outlook, and we might even make a case for yet another ten-percent (or more) retracement in the market in the near future.
If we focus on these facts, we may find it impossible to keep constructive optimism as the fuel for our thoughts. In fact, we could drop into a highly negative mindset.
“When we allow fear and stress to take over our minds,” notes neuroscience specialist, Diane Alexander, “they drag our thoughts down to the region of the brain known as the amygdala. That’s the part of our brain responsible for our ‘survival.’ While its ‘fight or flight’ strategies worked well in cave man days–when we had to fight sabre-tooth lions to survive–nowadays, it restricts our choices and our thoughts become highly limited. When your thoughts are fueled by fear and anxiety, this is not the time you want to make decisions for your portfolio.”
So, if just the thought of a market correction makes your stomach tighten or your head ache, and you want to return to a mindset of constructive optimism, go to a quiet place and turn off your devices. Take four or five deep breaths, and mentally change your focus. Fasten your attention on optimistic (and true) thoughts such as these: Even in down markets, 20% of stocks move higher. With a little digging, you can locate many simple strategies that will keep your account in the green. Alternatively, you can stand on the sidelines and wait for new opportunities to present themselves at better prices. Finally, turn your attention to your long-term financial goals and mentally affirm that you will remain on your path to attaining them.
Fact: When the going gets tough, successful people do not focus their attention on existing facts. Instead, they recognize the challenges. Then, instead of falling into the negative belief system that they will never reach their goals, they 1) maintain a mindset of constructive optimism, while 2) they seek alternative routes that will keep them on track toward success.
Bottom line: I agree that hope is not a wise operating strategy with which to approach the financial markets
I do, however, believe that no matter which direction our market heads, north or south, I will view my financial goals and my ability to achieve them from a vantage point of constructive optimism. Will you join me?