Fear can be a perfectly reasonable, rational response to what has happened in the market. But then you say "OK, I'm afraid. What's really driving my fear?" And usually what people find is they are imagining a truly catastrophic situation. But they don't know they are imagining that until they really look at the emotion. And it's that fear of the catastrophic situation that then causes them to take an action, i.e., selling, probably at the worst possible time.
RIC: In other words, what they are doing is extrapolating, and they don't realize that their fear is based on their presumption that the market will drop all the way to zero.
DENISE: Exactly. I've had two people ask me, can it go to zero? They were serious.
RIC: Which is, of course, absurd.
DENISE: Right. But each decision is very much influenced by the emotion of your last result. So even if people didn't sell anything this week, they may have looked at their account every day or several times a day, and that functions neurologically as if you actually made that decision. Mentally, it costs you money. Now you are upset, and you are afraid. And it does really drive you, if you don't know this new way of working with emotions, to feel compelled to get out.
RIC: Many folks don't consider themselves to be investors, but rather consumers who are trying very hard to save for their retirement, get their kids into college, care for aging parents and enjoy future financial security. So they are investing, but they don't think of themselves as investors -- if you get my meaning. And they are scared. What should they be doing right now?
DENISE: First, realize that what they need to do is rethink their thinking about emotions. Emotions can really help you. They can protect you, if you learn how to use them that way. So what you've got to do is say, "Hey, I can feel something, but that doesn't mean I need to act on it. And when I feel something, I just need to pay a lot of attention to myself and go inside and research."
By the way, this applies to everything in life, because it's the way the brain works. Often, you'll find that there is something behind it, something bigger, more catastrophic, more worrisome that isn't really reality. When you go through this process, your brain seems to open up, and you realize it's not really the end of the world. For example, you don't need the money for 10, 15, 30 years, and you don't really need to do anything. But most people want to do something in order to expend the energy that the emotions are giving them when these emotions are instead really designed to help you understand your situation better.
RIC: You are raising a very important point. What about rationality?
DENISE: The quickest way to get rational is to get emotional, because if you incorporate that emotional information, you actually will end up with a more rational decision. But none of us have been taught this because we've only discovered this in the last five to 10 years. We don't know how to make our emotions work for us. Emotions literally are physically uncomfortable.
I liken it to being in the dentist's chair. They've got their hands in your mouth, and you are wondering "when will this be over?" But in a dentist's chair, you know it will be over in 20 minutes. And when you pay attention to the emotions, that little physical discomfort tends to go away, and your brain really does start to work with, "OK, what are my options, what are my alternatives, and do I really need to do anything at all or should I just look the other way?"
RIC: Then the best action is, in fact, no action?
DENISE: I think so, yes.