Label your Emotions

Amar Pandit , CFA , CFP

There is a Chinese curse that says “May you live in interesting times”. Come to think of it, we are indeed living in interesting times. On the one hand, SpaceX (led NASA’s mission) successfully took 4 astronauts to and from the International Space Station. On the other hand, thousands of people are dying in this second wave of COVID-19 because of the lack of oxygen supplies and timely medical treatment.

I have personally come across many people who have been impacted and heard from many others about their experiences during these times. Despite all the pain around, one silver lining is the resilience of humankind and our ability to go through such adversities. We are also witnessing people doing all they can, in their own capacity, to help not only their neighbours, friends, and family but also people they have never encountered before. This is the real power of humanity. While we are likely to read about all the negative things that are happening, it’s rare to see the great work that is silently going on by millions of people.

It’s natural to go through a sea of emotions during such times. Suppressing your emotions is not likely to help. Acknowledging that we are likely to go through emotions is always the first step.

After all, we are all human.

Human = Feelings = Emotions

Being Human = Having Feelings and Emotions

I have written quite a bit about the role of Feelings and Emotions in investing. We have all witnessed different emotions in action over the years (some notable ones – 2020, 2008, 2003-2007, 1999-2001, 1992-1995). Many are at play even now.

You can currently witness the emotions people are going through in the following lines.

  • The number of cases has just exponentially gone up
  • There are lockdowns
  • Markets are too High. They will go down. Let’s wait.

As I have written above, it’s just fine to go through these feelings. Feel all you can but this is one area where it’s best to avoid Acting on these feelings/emotions.

Here is a powerful way to avoid acting on feelings against your interest. This is super relevant in our financial lives and most importantly in investing.

Label the Emotions you are going through.

Is it Fear or Greed?

Is it Optimism or Pessimism?

Is it Hope or Hopelessness?

Are you feeling Gratitude?

Are you feeling Energetic or Tired?

There are many others that have a real impact on our financial lives and our lives in general.

Try doing it Now.

What Emotions are you feeling?

Label it.

If you are going through some of the above, you can label them as Fear or Opportunity or whatever you like.

Try this: You are bound to feel better just by labelling it.

There is a science behind it rather neuroscience.

In our Neuroscience class at Wharton, we were shown fMRI studies about what happens in our brains when we are exposed to different images, situations, words and so on. One such study was “Putting Feelings into Words”. In this study, participants were shown pictures of people with emotional facial expressions. On seeing the pictures, each participant’s “amygdala” activated to the emotions in the picture.

Remember amygdala.

This is the part of the brain that is primarily responsible for the “fight or flight” response. Its job is to protect us from risks and so it takes over the rational part of our brain (it’s the one that gets us to SELL or RUN).

Now when the participants were asked to label the emotions, the prefrontal cortex in the brain was activated and the activity in the amygdala was reduced. The prefrontal part of our brain is responsible for planning, analytical and complex behaviours. This is the part that controls our impulses and emotional reactions.

The ability to tame your amygdala and activate your prefrontal cortex is a huge asset for every investor but one that is often ignored. Labelling our emotions is thus an important tool (and the best part it’s truly FREE) available to all of us to become better investors and better human beings.

Have you labelled your emotions?


P.S. We were given an app in our class called “Mood Meter”. I have found this to be very useful. I am sure you will too.