So much of life is driven by emotion. And emotion is fickle. It can change on a dime. By way of example only, here is what has happened in the investment world this week:
A mere month ago, the index registered 76: extreme greed. In other words, the world moved from extreme optimism (confidence) to extreme pessimism (worry) in a couple of weeks. Yet in the real world, not much has changed at all. Stocks are pretty much worth today what they were a month ago. Perhaps even more.
There is no rational reason for this dramatic shift in outlook. Yet it’s real. Very real.
These emotional swings aren’t restricted to financial matters. They can affect all areas of our lives. The good thing is, we know humans have this vulnerability — that we’re susceptible to having our emotions run roughshod over our reasoning abilities. Armed with this knowledge, we can fight back. We can resist the urges to lay reason to the side and allow our emotions to guide our decision making.
It sounds easy. But it’s actually harder than it sounds. It’s hard because the herd is highly susceptible to emotions. The herd isn’t particularly good at thinking. And there’s comfort in being part of the herd. It can be lonely and a bit scary to be standing outside the herd. The fear of being left behind. The fear of ostracism.
But that’s exactly where you need to be at times to avoid the mistakes herds are bound to make. Unless you’re prepared to suffer the consequences.