Investing surfaces many of our most primal human instincts, with our decision making often driven by fear or greed. Being aware of these weaknesses and then working to control them makes for a better and more successful investor; and, as the stewards of your wealth, makes us better counsellors.
2025 has been a challenging year for investors thus far, with change and upheaval in the political and economic spheres generating angst and uncertainty across the globe. We, as human beings, tend to put a premium on consistency and sureness. Change can be difficult, and can cause stress, anxiety and fear when it’s not managed well and implemented thoughtfully. So, it’s not surprising in a year that has been characterized by surprising – even, at times, shocking – change, that even the most cool-headed amongst us have wondered, “What in the world is going on?” The new sense of uncertainty has led global markets to swing widely over the last few months. This volatility reflects uncertainty across businesses, consumers, and governments, as the long-established world order has come into question and even doubt, leaving investors challenged to stay on course to their wealth plans.
But it's in my nature! – fighting our ancestral impulses
As Yuval Noah Harari relays so effectively in his brilliant book Sapiens, our ancient ancestors lived in rather stark contrast to us – surrounded by the constant danger of larger and/or nastier predators, lacking any kind of protection beyond the tribe they were members of, and without any real medical knowledge and solutions to address even the most minor issues. Eat the wrong plant, and it’s not a trip to the doctor and a script for the solution – back in our early ancestors’ day, it was the end. And your tribe was life, with strength in numbers, mutual support and knowledge sharing being critically important to survival. Fear kept you alive, with your fight or flight responses critical to either getting eaten by a Woolly Mammoth or not. The instinct to survive by grabbing as much as you could and defending it meant the difference between starvation and plenty, perish or flourish.
In short, the instincts that we required to survive back then – instincts that, according to anthropologists, we developed over perhaps hundred of thousands of years – kept us alive, and the socialization skills we needed to remain in a tribe (and in relative safety) are, naturally, deeply imbedded in us.
Fear the “FOMO,” embrace the plan
However, it is often those very critical survival instincts that work against us in the modern world, especially when it comes to investing. Our fear instinct at the first sign of threats or trouble, for example when markets panic and fall, can work against us when it comes to avoiding “the noise” that often drives short-term market performance. Our fear of loss and scarcity can often drive us to hit the “sell” button when our defensive instincts kick in. Our desire to overcome the deep-seated fear of scarcity – what today we might call greed – can drive us to over buy when markets are rising, veer off of our investment or wealth plan, or become enthralled by the next “shiny ball” that someone wants us to believe is “the next big thing”.
Along with our own bedevilling instincts are those that apply to social acceptance factors, such as fear of rejection or negative judgement by the tribe. Being “different” in our behaviour and ideas of things when the tribe – today’s collective “market”, if you will – tells you that you are missing out (what we often refer to as FOMO, or Fear of Missing Out), can be dangerous to your social status and acceptance by others.
“Be fearful when others are greedy, and greedy when others are fearful.”
~Warren Buffett, renowned investor, Chairman & CEO of Berkshire Hathaway Inc.
Yet, it’s the very opposite actions and the right instincts that we need to evolve to be successful in today’s world, especially when it comes to investing. Investors in general would be well-served by not allowing fear and greed to drive their decision-making processes and actions. As we have just seen, to have sold out of fear in early April would have meant missing the rally back and even beyond where stocks were before the swoon, in many cases missing crucial returns and incurring unnecessary costs and lost time. Unfortunately, history has shown that markets have and are very likely to continue to challenge us in this way. Instead, often the right instinct is to leverage volatility to take advantage of others’ instinctual fears, and instead to be afraid when others for some strange reason believe there is nothing in the world to fear. In short, discipline and having a plan one can stick to through challenging periods is critical to achieving one’s goals.
“Plan beats no plan!”
~Timothy Geithner, former U.S. Secretary of the Treasury, on the U.S. and Canadian response to the Great Financial Crisis, as quoted by Prime Minister Mark Carney
We get it – helping you keep on track to what matters
Importantly, getting the right advice from a trusted counsellor and building a wealth plan that reflects your unique risk-profile and goals is critical to helping you avoid those ancient instincts that can do so much damage to your financial well-being.
Our Investment Counsellors at RBC PH&N Investment Counsel are trained and experienced in avoiding the very instincts that we as humans are so primed for, knowing as they do the damage that succumbing to their siren call brings. As accredited portfolio managers, they are subject to rigorous investment training, and understand that controlling our human instincts is crucial to achieve long term success. That knowledge and training, and their laser focus on achieving your goals, reflects one of the fundamental principles of our firm – that our advice is focused on your success and on achieving what matters most to you.
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