Please Don't Interrupt My Good Feelings
"I feel good! I knew that I would now." James Brown, financial planner.
Singing, viewing artwork, smelling flowers; these are some of the joys of life. They trigger feelings that give us the energy to overcome the challenges we face.
Stocks, not so much.
We use the proceeds, particularly these magical dividends, to pay for the experiences that feed our insatiable hunger for joy. But we fool ourselves when we think that stocks don't cause feelings first, and then pay financial dividends second.
The Nobel Prize-winning economist Daniel Kahneman calls it "System 1" and "System 2" thinking. First we feel, then we rationalize.
Let's look at an example. First, the reporter decides the story that will sell, then the market either reifies the storyline by the end of the day, or overcomes the storyline. When we hear the story, first we receive the reporter's emotions, then we have our own feelings, and then our logical brain tries to make sense of it all.
In the complex world of investing, the truly rational brain has infinite work to do to make sense of dependencies, correlations, and predictions. In the real world, where we live with other folks who want to feel good that kind of rational work is an impossibility.
Instead, we feel something, we rationalize causes (right or wrong), and form plans. We form plans to overcome the dangers we face, be they real or imaginary.
Planning is fun. Planning is empowering. Planning is taking these skeletal dreams and putting a little muscle on them and letting them walk on their own. Your financial plans, whether detailed or cursory, will enable all of your brain and body to feel good about your direction in life. Of course we cannot control the daily national and international news regarding such things as oil prices, gold commodities, terrorist activities, weather events, central bankers, or numerous other factors that cause us to feel. We can, however, go back to our plans and ask ourselves, "What has changed?"
This we can control: our financial plans. How liberating! I do feel good! I knew that I would!