Your Actions are Very Important
Finance is driven by behavior, not hard science. Hence the name, behavioral finance.
How you behave with money is A LOT more important than what you know about companies, industries, or following the lead of the best professional investors.
Finance has the feel of math with all of its numbers, graphs, and predictions about the future. At elite undergraduate and graduate business schools around the country, finance is a math-based field. You input data into a formula and the result tells you what to do.
This isn’t wrong, nor is it bad. Knowing what to do based on a formula tells you nothing about what’s really going on in your brain when you try to do it.
Behavioral Approach
Behavioral finance is a soft skill and it’s driven by… behavior.
Feelings such as fear and uncertainty will overwhelm any information you have from a financial formula. You can read about the Great Depression and you would probably tell yourself that you would have bought near the market low. But you don’t have the emotional scars of those who lived through it.
As a point of comparison, how did you feel in March 2020 when the market was having a meltdown? What did you do? Did you create a spreadsheet with a financial formula for guidance? Or did you make an investing decision based “on your gut?” What behavior did you exhibit? This is a great and recent example of behavioral finance.
When the feelings of finances are overwhelming, it’s best to talk about it with a professional, and correct your behavior. Serena has a coach to get a green ball over the net, Lebron has an instructor to put an orange ball through a metal hoop, and Mikaela has a trainer to help her ski around a blue gate.
Financial security is very important. The best professional performers have coaches. Why don’t you?