Tuesday, July 17, 2012

Psychology of Investing: Self-Sabotage


This is also known as self-handicapping. We all have the propensity to create self-limiting obstacles. This allows us to fail without feeling any great remorse or guilt. By setting a limitation that gives us an excuse we protect ourselves from full accountability.

It is always less painful to say I wasn’t at my best today, or I had this particular handicap which was directly causative for this perceived failure.

Think back, have you ever said you’re not feeling to well before an important presentation but you were going to suck it up and make the presentation anyway? Of course the self-fulfilling prophesy is that you didn’t make the sale. Or maybe you suddenly had some back pain prior to stepping out on the golf course for that minor tournament opportunity. These are examples of self-handicapping, basically it your sub-conscious effort to create a convenient excuse for lack of success. It is a protection behavior trait.

For the investor this behavior is the corollary to over-confidence. Most damaging however, this is a psychological trigger to move directly towards what we are attempting to avoid which is failure or a poor result.  The creation of the comfortable excuse protects us from experiencing the pain of a poor result. It allows us to avoid accountability and clears us from the potential guilt that accompanies a poor result.

Unfortunately the protective mechanism simply reinforces and assures the poor result. We have created a self-fulfilling prophesy and have no chance for success.

By recognizing this psychological trigger or behavior trait we can make the necessary adjustment needed to control the decision making process. Once freed of the need to avoid pain we can comfortably complete the due diligence and work through a proper decision making process. Only then can we clearly make good decisions about money. It also allows us to make proper adjustments when we get poor results.
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