How to Think Slow About Your Investments
The stock market is crushed! Do you feel a pit in your stomach when you look at your portfolio balance?
It’s time to THINK SLOW.
Daniel Kahneman (winner of the Nobel Prize in economics) has written that there are 2 types of thinking:
System 1 is Fast. It is driven by instincts and emotion
System 2 is Slow. This system is more logical and deliberate.
Each system is important. System 1 helps us complete routine and simple tasks with minimal effort: Drive on an empty road, detect hostile sounds, read short sentences, answer 2 + 2 questions.
System 2 is used when a problem is uncommon or needs more attention: Choosing which washing machine to buy, filling out a tax form, walking faster than normal.
When you first pull up your investment portfolio, chances are the number at the top of your screen is invoking a System 1 pattern of thinking.
No one sets out to make emotional responses when it comes to investing. Yet often we do because we don’t take time to engage the slow and deliberate system of decision-making.
Here are some questions that you can ask yourself to help engage System 2.
1) What do I think is going to happen? What specifically will cause this?
2) Is this what I think, or is this what I feel right now?
3) What do I think is going to happen in 5 years?
Crisis lives in the moment, but our goal is to make investment decision based on the future.
It may be that you need changes to your financial plan, or maybe not. If you do need some updates, make those changes in a logical and deliberate way.
Taking the time to THINK SLOW now, may set you up for greater success in the future.