Can You Feel It?

Notice the different reactions on the faces of people riding a roller coaster. Behavioral economists tell us that investors feel the pain of loss about three times more than we enjoy the gain. It is just being human.The benefit of this area of research in psychology and finance is information that we can use to manage our emotions during times of financial stress. This information doesn’t make us feel differently, but it helps us manage or cope with during stressful time.

Monday’s stock market was very scary.  We should expect to have an emotional reaction. But yesterday’s record-setting stock market simply didn’t feel as good as Monday’s market made us feel bad.

The Wall St. Journal reported this week that “sharp drops in the market transfix our attention, with short-term losses over shadowing our awareness of longer-term gains.” It is what humans do.

Often we use the roller coaster as an analogy for the stock market. It is probably not a good analogy.  At the end of the roller coaster ride, you find yourself at the bottom. Eventually, the stock market ends on top.