Last Updated on December 2, 2024
Overview – Learning to Handle the Stress in Investing
In almost any endeavour you pursue, it’s only a matter of time before you encounter a stressful situation. In some cases, these stressful situations can be quickly resolved, but sometimes this stress persists for an extended period and/or doesn’t go away easily.
Despite having a lot on our minds, there will be instances where we have no choice but to live with the stress so that we can complete our tasks, both personal and professional, in a timely and effective manner.
Similarly, when it comes to investing, there will certainly be times when tough decisions need to be made, current events are chaotic, certain problems need to be taken care of, or one of countless other issues occupy your thoughts.
Knowing how to live with stress is one thing, but knowing how to live with stress without compromising your ability to think logically, control your emotions, and make rational decisions presents an entirely different challenge.
By learning how to be mentally tough, investors can keep their emotions in check and make effective decisions even in the most psychologically demanding situations.
Why Should Investors Care About Being Mentally Tough?
It’s easy for investors to work effectively when they aren’t under any time pressure, their portfolio is humming along nicely, and they have no worries on their minds. As desirable as these conditions are, they won’t always be present.
There will be instances when investors are dealing with personal problems that occupy their thoughts, time is soon running out to make an important investment-related decision, or the panicking of other investors is affecting their ability to think rationally.
Sure, investors can wait for conditions to improve before resuming their work but what do they plan to do if these non-ideal conditions persist, keep waiting for the rest of their lives for the ‘perfect’ time to start working again?
To advance their goals, investors must work away at them little by little, but that means doing so regardless of the conditions they face. This is where mental toughness comes into play, which gives investors the ability to perform at a high level (or at least at an acceptable level) even under non-ideal circumstances, allowing them to advance their goals through thick and thin.
By mastering the skill of being mentally tough, investors can successfully deal with all kinds of vicissitudes without compromising their goals or losing their effectiveness.
Mental Toughness Complements Your Emotional Intelligence
It’s no secret that emotions and investing can get tangled up, often in very messy, destructive ways. Therefore, investors need to keep their emotions at bay if they want to minimize the possibility of jeopardizing their money.
While letting your emotions get out of hand can damage your portfolio, this doesn’t mean they should be treated as a handicap. After all, every investor is just human, and to be human means to have emotions.
Many investors focus on the analytical side of investing but forget the emotional side of it as well, and how emotions can also be used to an investor’s advantage when making decisions. So, part of being an investor also means having a strong understanding of your emotions and how to understand the emotions of those around you.
While the ability to keep your emotions at bay and having a deep understanding of them is important, these important skills don’t cover the importance of learning to shoulder lots of stress without snapping.
You can have world-class emotional intelligence and emotional control, but that won’t matter if you quickly forget how to apply these skills after being exposed to a modicum of stress. Everybody can perform well under ideal conditions, but the real test of a person’s skill is how they perform under non-ideal scenarios.
Now, it’s important to stress that mental toughness isn’t a replacement for emotional intelligence, nor vice versa.
Investors who possess strong mental toughness but inadequate emotional intelligence will simply bottle up their emotions without knowing how to deal with them, leading to them inevitably snapping. As we mentioned earlier, emotionally intelligent investors who lack mental toughness may find themselves unable to control their emotions when the stress starts to become too much.
Being Mentally Tough, While Effective, Has Its Limits
So far, we’ve discussed how being mentally tough can help investors perform at their best even when faced with challenging circumstances. Indeed, the ability to stay at the top of your investment game in a non-ideal environment is invaluable.
Although its importance cannot be overstated, even something as robust as mental toughness has its limits. This limit varies between investors, but the sooner investors discover what their limit is, the better.
Remember, the point of being mentally tough is to help investors navigate stressful times without losing their ability to think logically and make rational decisions. However, the implicit expectation is that the difficult times will eventually come to pass, or at least become more tolerable as time goes on.
Even the most mentally tough investors can only handle so much stress, chaos, and uncertainty before they eventually reach their breaking point and snap. No investor, regardless of their disposition or level of mental resiliency, can live with high levels of stress forever.
Knowing how to live with stress is important, but at the same time, investors must take steps to reduce their mental burden as much as possible, when possible. Naturally, different investors have all sorts of ways to let off some steam, but it’s crucial to do so before they reach their limit.
How Can an Investor Develop Their Mental Toughness?
After discussing its importance, we must now address the big question of “How exactly can investors develop their ability to be mentally tough?”
Mental toughness, like most other skills, is a mix of natural aptitude and deliberate practice. However, when it comes to practicing this particular skill, things can get tricky. Why?
Remember, the idea of being mentally tough is the ability to persevere through non-ideal circumstances, namely periods of high stress, without losing the capacity to perform at a high level. To practice this skill, investors must first be exposed to these stressful circumstances. However, it’s not every day that investors (or at least most investors) deal with high levels of stress.
How, then, can investors hope to develop this skill if that’s the case?
One possible solution is this: the next time investors encounter any sort of stressful situation, big or small, use those as opportunities to practice their ability to work under non-ideal circumstances.
For example, say that you’ve recently been analyzing some prospective investments, but a recent family emergency has been weighing heavily on your mind. Instead of postponing your work, you should continue it instead, which will hone your ability to perform analytical work even when other worries occupy your thoughts.
Nobody likes having to deal with stressful situations, but instead of shying away from them, investors should embrace them as an opportunity for growth, which will enable them to effectively deal with even more mentally demanding scenarios down the road.
Wrapping Up
As nice as it would be, investors won’t always have the luxury of working in perfect conditions. However, to achieve their goals investors must always work towards them, even under non-ideal, stressful circumstances. To successfully do this, investors must know how to be mentally tough.
By learning how to live with stress without losing their composure, investors can remain at the top of their game even if other things are weighing heavily on their minds. Because of this, mental toughness can be thought of as complementing an investor’s pre-existing emotional intelligence.
Despite its efficacy, mental toughness has its limits – even the most resilient investors have mental breaking points. Therefore, investors must still take the steps needed to alleviate the stress they’re experiencing before they snap.
