Browsing articles in "Psychology"

Staying Calm Amid the Chaos

Oct 19, 2015   //   by Profitly   //   Profitly, Psychology  //  Comments Off on Staying Calm Amid the Chaos

Feeling stressed out is all too common, and a new research shows that keeping stress intermittent is key to your success at work. Trouble is, that’s not always easy to do. Below is a great post by Inc. detailing a few ways that successful people deal with stress and use it to their advantage.

Here’s the article, written by Travis Bradberry:

The ability to manage your emotions and remain calm under pressure has a direct link to your performance. TalentSmart has conducted research with more than a million people, and we’ve found that 90 percent of top performers are skilled at managing their emotions in times of stress, which allows them to remain calm and in control.

If you follow our newsletter, you’ve read some startling research summaries that explore the havoc stress can wreak on one’s physical and mental health (such as the Yale study that found that prolonged stress causes degeneration in the area of the brain responsible for self-control). The tricky thing about stress (and the anxiety that comes with it) is that it’s an absolutely necessary emotion. Our brains are wired such that it’s difficult to take action until we feel at least some level of this emotional state. In fact, performance peaks under the heightened activation that comes with moderate levels of stress. As long as the stress isn’t prolonged, it’s harmless.


Research from the University of California, Berkeley, reveals an upside to experiencing moderate levels of stress. But it also reinforces how important it is to keep stress under control. The study, led by post-doctoral fellow Elizabeth Kirby, found that the onset of stress entices the brain into growing new cells responsible for improved memory. However, this effect is seen only when stress is intermittent. As soon as the stress continues beyond a few moments into a prolonged state, it suppresses the brain’s ability to develop new cells.

“I think intermittent stressful events are probably what keeps the brain more alert, and you perform better when you are alert,” Kirby says. For animals, intermittent stress is the bulk of what they experience, in response to physical threats in their immediate environment. Long ago, this was also the case for humans. As the human brain evolved and increased in complexity, we’ve developed the ability to worry and perseverate on events, which creates frequent experiences of prolonged stress.

Besides increasing your risk of heart disease, depression, and obesity, stress decreases your cognitive performance. Fortunately, though, unless a lion is chasing you, the bulk of your stress is subjective and under your control. Top performers have well-honed coping strategies that they employ under stressful circumstances. This lowers their stress levels regardless of what’s happening in their environment, ensuring that the stress they experience is intermittent and not prolonged.

While I’ve run across numerous effective strategies that successful people employ when faced with stress, what follows are 10 of the best. Some of these strategies may seem obvious, but the real challenge lies in recognizing when you need to use them and having the wherewithal to actually do so in spite of your stress.

They appreciate what they have.

Taking time to contemplate what you’re grateful for isn’t merely the “right” thing to do. It also improves your mood, because it reduces the stress hormone cortisol by 23 percent. Research conducted at the University of California, Davis, found that people who worked daily to cultivate an attitude of gratitude experienced improved mood, energy, and physical well-being. It’s likely that lower levels of cortisol played a major role in this.

They avoid asking “What if?”

“What if?” questions throw fuel on the fire of stress and worry. Things can go in a million different directions, and the more time you spend worrying about the possibilities, the less time you’ll spend focusing on taking action that will calm you down and keep your stress under control. Calm people know that asking “what if? will only take them to a place they don’t want–or need–to go.

They stay positive.

Positive thoughts help make stress intermittent by focusing your brain’s attention on something that is completely stress-free. You have to give your wandering brain a little help by consciously selecting something positive to think about. Any positive thought will do to refocus your attention. When things are going well, and your mood is good, this is relatively easy. When things are going poorly, and your mind is flooded with negative thoughts, this can be a challenge. In these moments, think about your day and identify one positive thing that happened, no matter how small. If you can’t think of something from the current day, reflect on the previous day or even the previous week. Or perhaps you’re looking forward to an exciting event that you can focus your attention on. The point here is that you must have something positive that you’re ready to shift your attention to when your thoughts turn negative.

They disconnect.

Given the importance of keeping stress intermittent, it’s easy to see how taking regular time off the grid can help keep your stress under control. When you make yourself available to your work 24/7, you expose yourself to a constant barrage of stressors. Forcing yourself offline and even–gulp!–turning off your phone gives your body a break from a constant source of stress. Studies have shown that something as simple as an email break can lower stress levels.

Technology enables constant communication and the expectation that you are available 24/7. It is extremely difficult to enjoy a stress-free moment outside of work when an email about work can drop onto your phone at any moment. If detaching yourself from work-related communication on weekday evenings is too big a challenge, then how about the weekend? Choose blocks of time where you cut the cord and go offline. You’ll be amazed at how refreshing these breaks are and how they reduce stress by putting a mental recharge into your weekly schedule. If you’re worried about the negative repercussions of taking this step, first try doing it at times when you’re unlikely to be contacted–maybe Sunday morning. As you grow more comfortable with it, and as your co-workers begin to accept that you will occasionally be offline, gradually expand the amount of time you spend away from technology.

They limit their caffeine intake.

Drinking caffeine triggers the release of adrenaline. Adrenaline is the source of the fight-or-flight response, a survival mechanism that forces you to stand up and fight or run for the hills when faced with a threat. The fight-or-flight mechanism sidesteps rational thinking in favor of a faster response. This is great when a bear is chasing you, but not so great when you’re responding to a curt email. When caffeine puts your brain and body into this hyperaroused state of stress, your emotions overrun your behavior. The stress that caffeine creates is far from intermittent, as its long half-life ensures that it takes its sweet time working its way out of your body.

They sleep.

I’ve beaten this one to death over the years and can’t say enough about the importance of sleep to increasing your emotional intelligence and managing your stress levels. When you sleep, your brain literally recharges, shuffling through the day’s memories and storing or discarding them (which causes dreams), so that you wake up alert and clear-headed. Your self-control, attention, and memory are all reduced when you don’t get enough–or the right kind–of sleep. Sleep deprivation raises stress hormone levels on its own, even without a stressor present. Stressful projects often make you feel as if you have no time to sleep, but taking the time to get a decent night’s sleep is often the one thing keeping you from getting things under control.

They quash negative self-talk.

A big step in managing stress involves stopping negative self-talk in its tracks. The more you ruminate on negative thoughts, the more power you give them. Most of our negative thoughts are just that–thoughts, not facts. When you find yourself believing the negative and pessimistic things your inner voice says, it’s time to stop and write them down. Literally stop what you’re doing and write down what you’re thinking. Once you’ve taken a moment to slow down the negative momentum of your thoughts, you will be more rational and clear-headed in evaluating their veracity.

You can bet that your statements aren’t true any time you use words like “never,” “worst,” “ever,” etc. If your statements still look like facts once they’re on paper, take them to a friend or colleague you trust and see if he or she agrees with you. Then the truth will surely come out. When it feels like something always or never happens, this is just your brain’s natural threat tendency inflating the perceived frequency or severity of an event. Identifying and labeling your thoughts as thoughts by separating them from the facts will help you escape the cycle of negativity and move toward a positive new outlook.

They reframe their perspective.

Stress and worry are fueled by our own skewed perception of events. It’s easy to think that unrealistic deadlines, unforgiving bosses, and out-of-control traffic are the reasons we’re so stressed all the time. You can’t control your circumstances, but you can control how you respond to them. So before you spend too much time dwelling on something, take a minute to put the situation in perspective. If you aren’t sure when you need to do this, try looking for clues that your anxiety may not be proportional to the stressor. If you’re thinking in broad, sweeping statements such as “Everything is going wrong” or “Nothing will work out,” then you need to reframe the situation. A great way to correct this unproductive thought pattern is to list the specific things that actually are going wrong or not working out. Most likely you will come up with just some things–not everything–and the scope of these stressors will look much more limited than it initially appeared.

They breathe.

The easiest way to make stress intermittent lies in something that you have to do everyday anyway: breathing. The practice of being in the moment with your breathing will begin to train your brain to focus solely on the task at hand and get the stress monkey off your back. When you’re feeling stressed, take a couple of minutes to focus on your breathing. Close the door, put away all other distractions, and just sit in a chair and breathe. The goal is to spend the entire time focused only on your breathing, which will prevent your mind from wandering. Think about how it feels to breathe in and out. This sounds simple, but it’s hard to do for more than a minute or two. It’s all right if you get sidetracked by another thought; this is sure to happen at the beginning, and you just need to bring your focus back to your breathing. If staying focused on your breathing proves to be a real struggle, try counting each breath in and out until you get to 20, and then start again from 1. Don’t worry if you lose count; you can always just start over.

This task may seem too easy or even a little silly, but you’ll be surprised by how calm you feel afterward and how much easier it is to let go of distracting thoughts that otherwise seem to have lodged permanently inside your brain.

They use their support system.

It’s tempting, yet entirely ineffective, to attempt tackling everything by yourself. To be calm and productive, you need to recognize your weaknesses and ask for help when you need it. This means tapping into your support system when a situation is challenging enough for you to feel overwhelmed. We all have someone at work and/or outside work who is on our team, rooting for us, and ready to help us make the best of a difficult situation. Identify these individuals in your life and make an effort to seek their insight and assistance when you need it. Something as simple as talking about your worries will provide an outlet for your anxiety and stress and supply you with a new perspective on the situation. Most of the time, other people can see a solution that you can’t because they are not as emotionally invested in the situation. Asking for help will mitigate your stress and strengthen your relationships with those you rely upon.

Why Most People Suck At Investing

Sep 15, 2014   //   by Profitly   //   Market, Profitly, Psychology  //  Comments Off on Why Most People Suck At Investing

Guess what. Most people are HORRIBLE at investing. That’s right, most people do a terrible job of picking out which stocks or sectors will rise and which will fall. You may or may not have heard this before, but it shouldn’t come as a surprise.


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A recent article by Business Insider dove in to just how bad most people really are when it comes to investing.

First and foremost, one big problem is that investors often find themselves buying at highs and selling at lows, especially when volatility picks up and patience is tested. The problem is that so many people keep holding a stock for far too long, thinking it will turn around and move in the direction that they want it to. They then become emotionally invested in it and blind to the reasons that it WON’T move in their direction. If you follow our gurus’ rules and limit your losses, you have less of an attachment to the stock and will be able to make better decisions. You still won’t buy at the very lowest and sell at the very highest, but you buy lower than you sell and still net a profit.

“Amidst difficult financial times, emotional instincts often drive investors to take actions that make no rational sense but make perfect emotional sense,” said BlackRock back in 2012. “Psychological factors such as fear often translate into poor timing of buys and sells.”

Richard Bernstein of Richard Bernstein Advisors considers twenty years of historical data for this in a new research note.

“The performance of the typical investor over this time period is shockingly poor,” wrote Bernstein. “The average investor has underperformed every category except Asian emerging market and Japanese equities. The average investor even underperformed cash (listed here as 3-month t-bills)! The average investor underperformed nearly every asset class. They could have improved performance by simply buying and holding any asset class other than Asian emerging market or Japanese equities. Thus, their underperformance suggests investors’ timing of asset allocation decisions must have been particularly poor, i.e., investors consistently bought assets that were overvalued and sold assets that were undervalued.”

Bernstein’s data is based on the buying and selling activity of mutual fund investors.

“They bought high and sold low,” he added. “When chaos occurred, investors ran away.”

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None of our gurus get 100% of their trades right, but you’ll hear them preach over and over again that the driver of their success is limiting losses. The famous economist John Maynard Keynes once said “Markets can remain irrational longer than you can remain solvent.” It basically means that your investment thesis could be completely right, but the market may not realize that until you’ve been forced out of your position due to massive losses. I don’t think any of us could have said it better ourselves.

For example, Tim could be shorting the crappiest company out there, but if mailers continue to go out at a record pace, the stock could continue to climb considerably higher. That’s why Tim cuts losses quickly and is always prepared to make a trade at a moments notice. Losing $1000 on a trade isn’t a big deal for him, but losing $100,000 on a trade would be. With the small loss, you move on and simply get prepared for the next pattern to present itself.

Emotions in Investing

Dec 10, 2013   //   by Profitly   //   Psychology  //  Comments Off on Emotions in Investing

As Tim and I have written about before, emotions can be a huge road block in becoming a successful trader. “Trading Psychology” is something you must continuously work on in order to improve your success rate. It is very easy to start buying when everyone else does or selling when everyone else does, known as the crowd mentality, but often people make those bets too late. You here about this a lot right now since the major equity indices like the Dow and the S&P are up around 30 percent on the year, which is a phenomenal return when compared to other years. People can taint each other with their behavior and cost everyone a substantial amount of money. This is sometimes called “market contagion.”

I found an article on Investopedia recently and wanted to repost much of its context here.

Contagion often leads to people making irrational decisions and prevents them from making proper evaluations of the investment opportunities that they comes across. As I stated above, people begin doing things like buying into overvalued stocks or selling at the very bottom. Remember, you want to buy low and sell high, essentially the exact opposite. There are arguments to be made for being the contrarian, but think about where you would be if you had made that move this past year? You’d be out a lot of money.

So let’s look at how exactly contagion impacts your brain when investing. Here is the life example that the article on Investopedia gives:

“Let’s assume that Ivan leads a placid life, earning a good living and putting his money into a secure retirement fund that does ok, but does not ‘shoot out the lights.’ Some of his friends are investing money in foreign bonds, and making double the return that Ivan receives from his conservative fund. Ivan’s resistance is strong at this point, and he follows his gut feeling that these bonds are too risky.

However, out of a mixture of curiosity and envy, Ivan the investor starts asking his friends how well the bonds are doing. They tell him that the returns are excellent, and are sure to stay that way. Ivan’s resistance slowly weakens, as he hears repeatedly how much he is losing out on and eventually, he gives in, buying bonds when they are nearing their peak.

Soon afterwards, some crisis occurs overseas, and his friends start to panic – as do many other investors. Once again, Ivan is contaminated and thinks he should also sell out before it is too late. After all, that is what his friends are doing.

Two months later, when the price is half of what it was when Ivan bought in, he is disillusioned and still recovering from his losses. Under normal circumstances, this would be the ideal time to make an initial investment, to get back in to the market or to top up existing holdings, but the emotions of contagion always work in the wrong direction, and Ivan retreats to recover.”

Harsh reality at its truest form. Stories like Ivan’s happen every day. These emotions are automatic and sometimes we don’t even realize that they are taking hold. It causes investors to forget about conventional wisdom and no longer use caution as they should. When people see what they are missing out on, they immediately want to give in and take part in whatever that is. The same happens when their friends start to get scared, as Ivan’s did. When you see a stock up 60% for the year, you obviously want to think it’s a great stock and that you should get in, but it may be overvalued at that play and begin taking a turn for the opposite direction.

Fear is one of the most powerful emotions. Thus, downward pressure Is more powerful than upward. Negative events, whether macro or micro, will generally bring out strong and faster responses from traders than a positive event would. So, when markets take a turn for the worse, the contagion of panic is far worse than the pressure people feel to buy when there are positive events.

The article goes on to note that there are some positives that comes from contagion. People tend to imitate those that are successful, meaning they will work harder and strive to better themselves in order to have that same level of success. This natural emotional process thus has it’s pros and cons much like most things in life. Just note that it seems to do more harm than good when it comes to investing.

In order to fight this, you have to try to be “emotionally neutral.” make your investments with rationality and a thorough thought process. Do not buy XYZ because your friend did a week ago and is now up 20%. Fear, excitement, and other similar emotions are your enemies when it comes to putting your money to work. Make sure you try looking at both sides of the story. What are the reasons to buy this stock, what are the reasons not to buy this stock. What price seems to be a fair value when compared to its peers, what are some of the macro and micro level risks that could make this stock fall and what are some of the positive events that could make the stock rally?