How Emotions Are Made
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By Matthew Gutierrez · September 22, 2024
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?? Getting a handle on our complex emotions is a superpower.
Managing our emotions in helpful ways can do wonders for us, whether at home, in relationships, or in the stock market.
It’s not easy. Fortunately, we can turn to all kinds of research. That’s why today, we'll discuss emotions and what investors can do to better understand them with Lisa Feldman Barrett, a world expert in the psychology of emotion and author of the sensational book, How Emotions Are Made .
All this, and more, in just 6 minutes to read.
— Matthew
Quote of the Day
"Investing is an easy game if you can control your emotions."
— Warren Buffett
Together With Masterworks
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What Else We’re Into
?? WATCH: How to think about risk with Howard Marks
?? LISTEN: The paradox of high-volatility alternatives ft. Alan Dunne
?? READ: What could be behind Ajit Jain’s Berkshire Hathaway stock sale
Trivia
Auto insurance rates in the U.S. have increased by 51% over the past 3 years. That’s the biggest 3-year spike since when?
How Emotions Are Made With Lisa Feldman Barrett
Howard Marks has said, “Emotion is one of the investor’s greatest enemies.” Many years earlier, Benjamin Graham said basically the same thing: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”?
Hard logic, a high IQ, and advanced degrees might help in financial markets, but success doesn’t often hinge on raw intelligence. It usually depends on something far more elusive: emotional intelligence.
Clearly, handling our emotions matters. Warren Buffett, Charlie Munger, Graham, Marks, Todd Combs—the list goes on—all say investing is more about emotional management than IQ. They consistently emphasize a truth that many overlook: Our feelings play a large role in our financial decisions, for better or worse.
But why are emotions so crucial in a field dominated by numbers and data? And how can understanding and managing our emotional responses lead to better investment outcomes?
Lisa Feldman Barrett is here to help. The psychologist and bestselling author of How Emotions Are Made discussed her book and how investors can better manage their emotions. This interview has been edited lightly for brevity and clarity.
Much of investing involves regulating our emotions. Before getting into the weeds, let’s start at the high level. What comes to mind when considering investing, which can be an emotional roller coaster for many??
Investing is inherently uncertain. The stakes are high, and there's a lot of uncertainty. Uncertainty is metabolically expensive, so investing can be very metabolically expensive, just like exercising or learning a new skill or language.?
Charlie Munger has said, “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw irrational emotion under control.” What does temperament mean to you?
When people talk about temperament, they're really talking about mood. They're talking about how easily perturbed are you? Are you somebody who floats tranquily in the sea of life? Your mood might vary a little, but you’re not perturbed a lot. Whereas other people are treading water, and their mood is always up and down.?
So, yes, temperament is a real thing, but it's linked to...