No. It’s not time to panic. In fact, it’s never time to panic.
Two books I’ve read recently explain why.
Here are a few passages from Deep Survival that put fear and stress into perspective.
But it’s easy to demonstrate that many people (estimates run as high as 90 percent), when put under stress, are unable to think clearly or solve simple problems. They get rattled. They panic. They freeze.
Only 10 to 20 percent of people can stay calm and think in the midst of a survival emergency. They are the ones who can perceive their situation clearly; they can plan and take correct action, all of which are key elements of survival. Confronted with a changing environment, they rapidly adapt.
Although strong emotion can interfere with the ability to reason, emotion is also necessary for both reasoning and learning. Emotion is the source of both success and failure at selecting correct action at the crucial moment. To survive, you must develop secondary emotions that function in a strategic balance with reason. One way to promote that balance is through humor.
While all of these passages were describing actual life and death scenarios (being trapped on a river during a flash flood, being stuck on a mountain during an avalanche, etc.), it’s easy to see how these lessons could apply to an investment scenario—especially when we see a quick 5-8% decline in a few days after we’ve been conditioned that stocks only go higher.
The market is always confronting us with a constant flow of news and scary headlines. Sometimes the market reacts to them, sometimes it doesn’t. But, when it does, we have to adapt or have a plan in place. Planning can avoid panicking. Trust the process.
The other part I want to touch on here is the humor aspect. When I go to all-caps-bear-market-Ramp-mode, I’m not actually freaking out IRL. I’m trying to get you (and myself) to laugh so that your (my) brain can release the correct chemicals to make good investment decisions. You’re welcome.
Moods are contagious, and the emotional states involved with smiling, humor, and laughter are among the most contagious of all. Laughter doesn’t take conscious thought. It’s automatic, and one person laughing or smiling induces the same reaction in others. Laughter stimulates the left prefrontal cortex, an area in the brain that helps us to feel good and to be motivated. That stimulation alleviates anxiety and frustration. There is evidence that laughter can send chemical signals to actively inhibit the firing of nerves in the amygdala, thereby dampening fear.
Some of you may have started investing in the past few months or years—maybe you’ve been investing for your entire life. I want you to think back to a time when the market went down a lot and you felt a sense of fear. Did you make brash decisions? If so, did you later regret those decisions?
Was there ever a time when you made a decision under duress and it actually turned out to be the right decision? I can tell you on my own account, most of my worst investing decisions have come in the face of panic.
Think about this next time the markets drop 3% in a day or 10% in a week and you start to feel fear creeping in. Maybe you are overexposed and need to take some leverage off the table to sleep at night. Put things into perspective.
Investing isn’t a life or death situation. We need to remind our brains of this truth. Deep sea diving is though, as described in Shadow Divers:
A great diver learns to stand down his emotions. At the moment he becomes lost or blinded or tangled or trapped, that instant when millions of years of evolution demand fight or flight and narcosis carbes order from his brain, he dials down his fear and contracts into the moment until his breathing slows and his narcosis lightens and his reason returns. In this way he overcomes his humanness and becomes something else. In this way, liberated from instincts, he becomes a freak of nature.
It’s in our DNA to feel fear when threatened—but, we have to first recognize it, then control it before it controls us. Once we lose control, it’s game over.
Regardless of the situation, add a little humor into your life to balance your emotions.
To laugh at our own misfortune, we must be willing to play the fool.
This is post #55. You can follow me on Twitter or Instagram or sign up for my free newsletter here. Also please check out my Amazon page for a full reading list.
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