Investing from the heart
Worrying news from the world of academia: a professor at Warwick Business School has found that some investors refer to stocks 'almost as if they were lovers'.
In a press release sent to Euromoney, Professor Richard Taffler says a survey of 50 experienced fund managers from across the world showed what an important role emotion plays in successful investing.
Rather than staying cold-blooded and rational, the top fund managers rely on emotion to choose which stocks to buy, he says. Quite reasonably, you might think.
Taffler found that investors use ‘story-telling’, which weaves facts and emotions together, to convince themselves about a stock, with some referring to them almost as if they were lovers, he adds, taking a sharp turn to weird town.
With their money on the line, investors are bound to experience strong emotions. Entering into an emotional relationship with a stock or asset inevitably leads to anxiety, because they can easily let you down. This, Taffler says, "may not be consciously felt but will be bubbling beneath the surface".
Investors deal with this anxiety through story-telling, which gives them the conviction they need to buy the stock or put money into a company.
"A very important insight in emotional finance is the concept of the fantastic object," says Taffler. "It’s like Aladdin’s lamp, which you polish and can have anything you want. In unconscious terms this is ultimately what we are all looking for." Now, we’ve heard of loving a particular stock, but this might be taking things too far.