When we think about investing, we often focus on numbers and company information. But there’s another important part: understanding our feelings and reactions, called Emotional Intelligence (EI).
Emotional Intelligence helps us know and manage our emotions and understand others’ feelings too. It’s about being aware of our feelings, understanding why we feel a certain way, and using these emotions in helpful ways.
(While feelings are important, it’s also essential to know a company’s fundamentals. For those who want to learn more about this, check out my Fundamental Analysis. Here, I break downcompanies based on their foundational strengths, offering comprehensive insights to guide your investment choices.)
Now, let’s understand what “Emotional Intelligence” really means.
1. At the start, it’s about spotting our emotions right when they pop up. This could be figuring out if we (or someone else) are feeling happy, sad, angry, or any other emotion.
2. Next, we need to understand why we’re feeling that way. For instance, if we’re feeling upset, we should try to figure out what event made us feel like that.
3. Once we know what we’re feeling and why, we then need to manage those feelings.
4. Finally, we should use these emotions in a way that can help us make decisions or solve problems.
The Big Impact of Emotional Intelligence on Value Investing
Investing is not just about crunching numbers. It’s a mix of our personal feelings, memories, emotions, and even influences from what we hear in the news or from friends.
Having a high level of Emotional Intelligence gives us an advantage in investing. Our investment choices are shaped by many things like:
1. Our past experiences
2. The latest market news
3. Decisions our peers make
4. Our own range of emotions, from being super excited to being overly cautious.
Being in tune with our emotions, which is a big part of EI, helps us navigate these influences. For example, if we had a bad experience in the past with a certain type of investment, we might avoid it in the future, even if it’s a good opportunity. Or, if we’ve had a lot of wins recently, we might take bigger risks, missing potential warning signs.
In both cases, having good EI can help us keep our emotions in check and stick to ourlong-term plans. (For those eager to dive even deeper into smart investment strategies, I’m active on Facebook and Telegram. Join me to get insights and educate yourself on making the most of your investments.)
Boosting Our Emotional Intelligence for Better Value Investing
Good news! Emotional Intelligence isn’t set in stone; we can improve it, just like we can learn a new hobby or skill.
Here are 5 things you can do.
1. Set clear goals for our investments. By doing this, we can avoid making quick decisions based on how we’re feeling at the moment.
2. Focus on self-awareness. This is the foundation of EI. It means we should always be aware of our feelings and how they might impact our choices.
3. Try to avoid things that make us too emotional or reactive about investing. This could be certain news sources or even discussions that get us worked up.
4. Seek feedback from friends or mentors. They can offer a fresh perspective and might spot things we’re missing.
5. Always be learning. The more we know, the better equipped we are to handle things we didn’t expect.
While understanding the company’s fundamentals is important, it’s equally important to understand ourselves. Strengthening our Emotional Intelligence provides us with the tools to make right investment decisions and adeptly manage the investment roller-coaster.
Ben Tan is a value investor who educates and inspires like-minded individuals to become better value investors. You can find him on Instagram @theglobetrottinginvestor or Twitter @investwithTGI. Visit his website to learn more: https://www.theglobetrottinginvestor.com/
