Friday, October 24, 2014

The Four F’s of Investing Behavior.

The Four F’s of Investing Behavior.

One of the first things I learnt in Psychology 1011 a lifetime ago, was the basic framework of the “Four F’s” to explain most basic human and animal behavior.

Otherwise known in part as the “Fight or Flight response.”

The Four F’s:
Feeding and:
“Fornication.” (Resisting using the other term!)

Since I’m sure that most wont forget to eat while trading ….. or do the other thing, I was thinking how easy it is that we go from the fight to flight response under stress.

Having just gone through the correction, our rational behavior, or at least mine was tested by the flight response (fear), despite having a rational belief that “everything would be alright.”  No one is immune to emotional behavior sometimes, or certainly instinctual programming.  But there is hope.

Fear is often treated in people with phobias (arachnophobia etc) through exposure therapy.   I.e. Exposing someone to his or her fear in a safe environment, leading to extinction or reduction of the response to it.  Whilst I wouldn’t classify what I felt as fear, there was a little stress and avoidance going on perhaps.

So what makes someone less susceptible to this reaction?  Clearly experience, through seeing the events unfold, a skill increase through surviving such events and learning, and a solid foundation/training to rely on.

I bet US Navy SEAL Team 6 would score far less on fear scales under relevant stressors than the typical population does due to intense exposure to those factors above.  I also bet they NEVER stray far from their training or procedures!

These days I’m thinking far less about the profit I want to make in the markets, and far more in the learning & conditioning this year should provide.  It’s a good thing!

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