Presently
there exists a uniquely positioned psychological dilemma in our financial
markets. For private businesses and small cap public entities the capital
markets have come to a standstill. There are no banking opportunities and now
the investor side of the equation has all but dried up completely.
The major
causative factor in this phenomenon is the normalcy bias. The following best
describes the normalcy bias:
"A quirk of the human condition
is for the mind to desire normalcy so intensely as to consciously or
subconsciously disregard knowledge that is disruptive to a pre-conditioned
reality. This phenomenon is an important part of crisis management and market
psychology. The consequence of a normalcy bias is that warning signs of a
potential crisis go unnoticed or are interpreted optimistically. When a crisis occurs people are
so overwhelmed by events inconsistent with a desired reality they lose their
ability to make decisions. Researchers believe when the mind encounters an
entirely new experience or event it attempts to match that reality to relevant
experiences of the past. If there are no matching experiences the mind enters
into a kind of feedback loop resulting in passivity. This lack of action
as a response to risk is called negative panic and it culminates in a
dangerous inability to act assertively in crisis. In essence, the psyche
struggles to come to terms with what is really happening, paralysis follows.
The
afore-mentioned paralysis exists in the form of procrastination which is always
a negative factor for any financial decision making process. One can always
measure their loss in both the present and the future based upon
procrastination. Nothing good ever comes from procrastination, it is a
no-decision which is in itself a very discernible decision.
Investors of
all types large, small, fat, skinny, intelligent, ignorant etc... Are suffering
this malaise. Once they understand and become aware of it, they can be awakened
and the ability to make smart decisions about money will return like fresh meat
after a thaw.
We now have
many people who are stuck in the paralysis by analysis cycle, this is why so
much money is on the sidelines and people believe they want to stay in cash. By
treating the symptom we will not cure the disease. The core of the procrastination
is the normalcy bias, which is being promulgated in a continuous state of
unawareness.
The initial
step in correcting this psychologically driven procrastination cycle is to
overcome the fear of change. Just as the normalcy bias overcomes individuals in
disaster based crises, it now exists due to the ineffective awareness of a
permanent changing economic environment. Everything old will not be new again.
Gone are the days of happily reminiscing for a return the good old days of the
past. We have recycled into a global economic trend and investors need to start
embracing the way opportunity will present itself in this type of environment.
Of course it will look, feel and be abundantly different. Old trends have
become meaningless and provide no benefit for any forethought into smart
decisions about money.
Not only do
investors have to make this leap, but investment advisors, financial planners,
family and business advisors such as CPA’s etc.. all need to make the leap as
well. The ostrich approach to sit around and wait until things return to normal
is a sure-fire failure driven approach.
The second
step once fear is lifted is to practice a counter-intuitive approach to
investment observation. Plain vanilla investment approaches will not keep you
above water in the present financial environment. The need to embrace
alternative investment opportunities is paramount to financial survival.
Understanding the motivation of Wall Street institutions and their direct
connection with government impact on the economy becomes more necessary than
ever before. Your investment success is now mandated upon several additional
factors including geo-political factors that impact the entire universe of
industries and investment sectors. How does taxation, regulation and government
oversight impact the entire industrial universe has to be taken into account
when looking at any single business entity within that specific universe.
These are
big changes and they are difficult adjustments for investors and consumers
alike. By embracing these changes and fearlessly diving into the new financial
market place you can master the on-coming surge of great opportunity and
successfully overcome all obstacles in making smart decisions about money. What
you cannot afford is the infinite losses assured through procrastination.
Learn the Psychological
Triggers that will inoculate and insulate you against scams, fraud and
predatory sales tactics.
www.karlschilling.com
No comments:
Post a Comment