Psychology of Misjudgment #17. Stress-Influence Tendency

[LongHaul]

17. Stress-Influence Tendency

 

"Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in a human body, prompting faster and more extreme reaction. And everyone who has taken Psych 101 knows that stress makes Social-Proof Tendency more powerful.

 

In a phenomenon less well recognized, but still widely known, light stress can slightly improve performance — say, in examinations — whereas heavy stress causes dysfunction."

 

"This should come as no surprise that excess stress can lead to faulty decisions. Being able to remove the things to lead to stress will only help improve decisions."

 

Lots of people are experiencing extra stress now - although perhaps a bit less now that we are all getting numb to the pandemic and learning to cope with it.

For investing, the stress of a massive market collapse, especially over years of watching your net worth fall drastically is too much for many.  Stress is one contributor to capitulation and panic selling.    Expect massive falls in your investments and test their fundamentals for bad times. 

 

Learn healthy ways to cope with stress such as:

1.  Exercising

2.  Meditation

3.  Awareness of your inner self

4.  Eating 500 Cherry Snowcones

5.  Being in nature

6.  Getting plenty of sleep

[SharperDingaan]

Stress is just inability to guarantee a particular outcome - discovery that you are NOT a 'master of the universe!'

You can react to it (rip out eyeballs, etc.), accept it (ulcers, etc.), let it just flow past (meditate, etc.), or use it. It's gaming, and little irritates a boss more, than an employee NOT reacting to stress (Don't worry, be happy!; Bobby McFerrin). Lot's of ways to NOT play the game, and most people will naturally find what works best for them.

 

Of course, if you also know what stress does at the extremes - there should be little hesitation to exploit it.

'Market discontinuities', 'dividend cuts/eliminations', are high stress events. So don't offer a door to anyone rushing the exits of a burning building, until you can see the flames/smell the billowing smoke. Stress - becomes fear - and your friend.  On the upside, stress - becomes greed - and your friend. Both underscoring the reality that cold, hard CASH is your only real friend. Value investing 101.

 

That said, it is a lot of fun to be in a riot - and you meet all kinds of interesting people!

Just know who the predators are.

 

SD

 

 

 

[fkw1979]

Not only can stress cloud the ability to think rationally but perhaps the greatest most pernicious harm of stress is the type that is so extreme that it rewires your brain causing it to misfunction. This can probably explain why there are people who grow up crazy and violent coming from very stressful environments at home as a child, why people who come back from war suffer from PTSD, and how people can be so brainwashed they will think their loving parents are trying to kidnap them and instead run into the hands of a crazy cult.

 

Regarding stress and it's threat of clouding your thinking, I am guessing that is one reason why Buffett works out in Omaha and not in NY and Wallstreet. It is also probably why he does not have a computer in his office. Set up your environment such that it encourages the activity you find productive and avoids the type of activity that pose a risk to your work. Buffett is rational to a T. This is a perfect example of this.

[Guest cherzeca]

most "remedies" for stress are not relevant imo.  I say that because most stress that you can do something about arises from an activity in which you are trying to accomplish an objective and the world of course is pushing back. in addition to this life activity-generated stress, there is the baseline of stress arising from life and the human condition, such as knowing that you will die, your loved ones may predecease you etc. for this latter, non-activity stress, "remedies" like meditation, exercise are very helpful.  but I find it much more important to learn distressing techniques that can be used in the midst of an activity that deals with the stress of the moment...essentially, it can all be boiled down to focus.  mindfulness can help, but I have found mindfulness to be a little too obtrusive, as it can be hard to focus and pay attention to activity details when your mind is saying to you at a meta-level pay attention.  paying attention and focusing as a mindset whenever you are trying to accomplish something, as a part f your toolkit to tackle life's to do list, is how I think stress is best avoided in the moment, and not later that afternoon when you take 20 minutes out to meditate.

[fkw1979]

most "remedies" for stress are not relevant imo.  I say that because most stress that you can do something about arises from an activity in which you are trying to accomplish an objective and the world of course is pushing back. in addition to this life activity-generated stress, there is the baseline of stress arising from life and the human condition, such as knowing that you will die, your loved ones may predecease you etc. for this latter, non-activity stress, "remedies" like meditation, exercise are very helpful.  but I find it much more important to learn distressing techniques that can be used in the midst of an activity that deals with the stress of the moment...essentially, it can all be boiled down to focus.  mindfulness can help, but I have found mindfulness to be a little too obtrusive, as it can be hard to focus and pay attention to activity details when your mind is saying to you at a meta-level pay attention.  paying attention and focusing as a mindset whenever you are trying to accomplish something, as a part f your toolkit to tackle life's to do list, is how I think stress is best avoided in the moment, and not later that afternoon when you take 20 minutes out to meditate.

 

The remedies for stress are good suggestions as ways to put you in a daily state of mind that is best able to cope with the stresses that come about during life. These are great tools one can use to keep you in a calm and peaceful state. As opposed to walking around neurotic all the time. Which person do you think will be better able to handle and cope with stress when it comes about during each person's day? So they are relevant imo.

 

Meditating on what is going on in the moment and within yourself may also be helpful during times of stress. Being mindful of what is going on objectively instead of personally being deeply "in it" can probably help. Now if you are getting chased by a bear or someone with a machete, that might not be very sensible so you probably want to focus on getting away, but most situations in life are not that urgent.

 

One other thing. Most people make their decisions based on emotion or a feeling and then justify it in their minds subconsciously with logic. Some do this more than others. Mindfulness is one way to deal with this.