We all know that the Coronavirus has affected just about everything, from the stock market, to how we work, to whether we can go out and grab a bite to eat or go to a show (which, considering this is Nashville, is kind of a big deal!).
These changes affect our emotions, and if we’re not careful, those emotions can lead us to make mistakes. We must understand how our emotions work, and how we can keep them under control, so that we can make better decisions in investing and in life.
How does our reaction to fear affect how we invest?
Our brain’s emotion center is called the amygdala. This is the part of the brain that’s responsible for the fight or flight response. This ancient and important survival skill is what helped us save ourselves from danger in primitive times. When we see or sense danger, the fight or flight response kicks in, causing the heart to pump faster, providing more oxygen and energy for muscles, and releasing adrenaline and cortisol to suppress the immune system.
This fight or flight response is great if we are about to be attacked by a predator, but it’s not that great for today’s less obvious dangers, such as a falling stock market, the Coronavirus, or a job loss. The body’s fear response triggers involuntary reactions, which can actually bypass logic and thinking—just what you don’t need during times like we are experiencing now.
This phenomenon is called the Amygdala Hijack, a term first coined by Daniel Goleman based on the work of neuroscientist Joseph LeDoux.(1)
So, what is the Amygdala Hijack?
The Amygdala Hijack is an immediate, overwhelming emotional response, with a later realization that the response was inappropriately strong given the trigger. In other words, it’s “freaking out,” or seriously overreacting to an event in your life.(2)
Under normal circumstances, we process information through the neocortex, or “thinking brain,” where logic occurs. When the Amygdala Hijack happens, this normal process is short-circuited and the thinking brain is bypassed, sending signals directly to the “emotional brain” section. This often leads to bad decisions and later regret.
The Amygdala Hijack actually affects our ability to think. Experts say that when the amygdala is active, our thinking power is disrupted and we experience deficits in problem solving and thinking power. It’s like losing 10 to 15 points of IQ temporarily, which explains why we look back and say, “What was I thinking?”(3)
A recent example of this is when the stock market dropped in reaction to the Coronavirus. You wouldn’t be human if this didn’t cause you some fear as you watched your portfolio drop! The people who panicked and sold everything to get out of the market probably were experiencing an Amygdala Hijack.
We all know we should buy low and sell high, yet during a severe market drop emotions can take over, cause fear, and even bypass our “thinking brain.” This leads some to forget the cardinal rule of investing and do the opposite—sell low by cashing out after the market has gone down. Since the market has gone up dramatically in the last month after that drop, many people already regret not staying in the market.
How can we overcome the Amygdala Hijack?
First, be aware of events that can trigger this emotional response. Is an event (such as the stock market drop, the Coronavirus, a job loss, etc.) causing you fear? Are you about to take quick action without thinking? If so, here are some suggestions to help counteract a potential Amygdala Hijack:
1. Use the six-second rule.
Waiting just six seconds can diffuse the brain chemicals that cause the Amygdala Hijack. Breathe deeply or focus on a pleasant image (i.e. go to your “happy place”) to prevent your amygdala from taking control and causing an emotional reaction.
2. Identify your feelings.
Labeling your feelings helps reduce their intensity and return some activity back to your “thinking brain.” When you see that you’re scared, call it out. This will help you accept and normalize what you’re feeling and can help reframe your thoughts so they are less fearful.
3. Get a second opinion.
Call your Paul Winkler coach! Your coach can provide that unbiased second opinion to help you identify what you’re feeling, label it, think through the situation logically, and see how the emotional reaction might be getting in the way of your true purpose for money.
4. Educate yourself about proper investing to help you Relax About Money™.
We can help with that, too! Our educational process and portfolios are designed to broadly diversify and invest according to your desired level of risk. An education on proper investing will help you better understand how to be prepared for this crazy up and down market! Knowing that market variations are an expected part of investing can reduce stress and help you stay the course.
By Anne Sawasky
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*Advisory services offered through Paul Winkler, Inc. (‘PWI’), a Registered Investment Advisor. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase or sale of any securities. Information we provide on our website, and in our publications and social media, does not constitute a solicitation or offer to sell securities or investment advisory services, or a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.