Emotional intelligence is defined as someone’s ability to be aware of, control, and express their emotions. Not only does this go a long way towards helping them better navigate the complexities of their daily lives, but it also puts them in a better position to handle personal and professional relationships with grace and empathy.
But emotional intelligence isn’t a concept that is reserved exclusively for your friends and loved ones. It can and should be a factor when investors are making choices and experiencing outcomes, too. Many people say that there is “no place for emotion” in investing.
That’s not quite right – it’s not about eliminating emotion, but rather understanding it and seeing how to use it to your advantage. It’s also about not letting emotions cloud your judgment, leading to impulsive decisions and increased risks along the way.
The Importance of Self-Awareness and Emotional Regulation
One of the biggest reasons why emotional intelligence and factors like self-awareness and emotional regulation are so pivotal has to do with how they can help you navigate the admittedly volatile markets you’re likely investing in.
It doesn’t matter what type of investment you’re talking about – be it wholesale real estate, the stock market, or something else entirely. Conditions can and often do change frequently, typically for reasons beyond your control.
When you lack self-awareness and emotional regulation, the issue is that you start chasing trends instead of anticipating them. It’s a much more reactionary way to invest, which almost never works out in your favor over the long term. If you have stock in a company with a particularly disastrous news cycle, your emotions may tell you that you need to “get out” as quickly as possible.
But what if logic tells you that this is just a temporary blip that will course correct in a few days or weeks? What if that same company has a product launch coming up that stands poised to take its value to new heights?
You’ll miss out on all that if you act purely on emotion and sell your stock based on negative press. If you’re capable of self-awareness and emotional regulation, on the other hand, you’ll, at the very least, be in a position to weigh these options carefully and make decisions based on your own risk tolerance.
Making Informed Choices, No Matter What
All of this segues into another major role that emotional intelligence has to play: positioning you to make the most informed decisions possible given not “gut instinct” or “intuition” but cold, hard facts.
When you lack emotional intelligence, many different avenues start to look a lot more like gambling than they do investing. While it’s true that there is always a certain amount of risk involved, and sometimes life will throw you a proverbial curveball, things are much more fact-oriented than people realize.
To put it another way, emotion might tell you to invest in a company that isn’t successful, but that has been around a while, so “they’re due.” Emotional intelligence will at least have you research that company to find out why they may have spent a few quarters missing their financial objectives.
That’s not to say that experience and intuition don’t matter in investing to a certain degree because they do. There will always be the exception that proves the rule – sometimes, an outlier will occur, and experiences can help you recognize it and play the situation favorably. But for the most part, these decisions need to be based less on what you think and more on what you know beyond the shadow of a doubt.
Sticking to the Long-Term Plan
All this is key when it comes to what should be the number one priority of any investor: creating the best possible long-term investment strategy and, above all else, sticking with it, regardless of what happens in the near term.
If your primary goal is to save as much money for retirement as possible, your investment strategy and portfolio have been built around that idea. If the stock market goes through a dramatic period of turmoil today, that doesn’t mean you should “cut your losses and run” if you’re not going to retire for another 20 years.
If that is the case, it doesn’t matter how bad things get. It could take a year or even 10 to meet or exceed expectations. What matters is that your original plan was sound, that you are still on track to make a certain return over the given period, and you need to stick to that long-term plan and not waver.
It’s hard to have faith in the system when it, almost by design, generates a highly emotional, stressful experience. But you would never try to get off a roller coaster halfway through the ride just because things got a little bumpy. You’d see the passage through to the end and ultimately arrive at the station just like you were supposed to.
Emotional Intelligence is Key to Making Sound Investment Decisions
Overall, by making an effort to understand what emotional intelligence is and what it can do for you, you put yourself in the best possible position as an investor to leverage it to your advantage. It’s not just that it helps you mitigate risk and avoid unnecessary mistakes.
Emotional intelligence can help investors enhance their decision-making process. It can help you achieve better financial results than the ones you set out for yourself. It can ultimately help build a more resilient investment portfolio, which in and of itself may be the most important advantage of all.
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