When the Market is Plunging, Can I Trust Myself Not to Panic and Sell?

By David Geller   |   December 13, 2018

The general answer to this question is no. And why? Because you’re human.

Please note, this is not a character flaw. It’s faulty wiring that every person on the planet has inside them. So, why the disconnect?

Reason #1: We are terrible at predicting how we will behave in the future. 

Our inability to predict how we will act in the future is called forward-looking myopia.

David DeSteno is a widely celebrated author and professor of Psychology at Northwestern University. In his book, The Trust About Trust: How it Determines Success in Life, Love, Learning, and More, he defines forward looking myopia as, “focusing more on the present than on the future, which subsequently leads to two related problems.  Because the present is closer in time, it is not only clearer but matters more.” (Page 213)

What does it mean? Take chocolate cake and market volatility, for example.

We are confident we will be able to not eat the chocolate cake a few days before we attend our best friend’s birthday party. Similarly, we are confident that no matter how turbulent the market will get, we will be able to hold on because we understand that markets recover, and the loss is only temporary.

Yet, when the party comes we eat the cake. And when the market plunges, we get scared and move our money from stocks to cash. In both cases, we just engaged in behaviors that are adverse to our long-term wellbeing. The first impacts our health and the second our wealth.

Trying to predict the Future is Futile… Even if it Feels Good to Do So

In my mind, forward-looking myopia is the insatiable pull of the chocolate cake. Yes, not eating it may help me lose weight and live longer, but eating it gives me immediate pleasure. And, yes, it might make sense for me to hold onto my stocks during a bear market, but it terrifies me and if I move to cash I’ll feel immediate relief.

In that moment of temptation –whether it be eating the cake or moving to cash–it takes a lot of willpower to resist the temptation. (DeSteno, pg. 216). DeSteno notes that Kathleen Vos, another respected psychologist at the University of Minnesota Carlson School of Management, has demonstrated that willpower uses a lot of energy, and once “your willpower becomes taxed, you’re likely to act in way you’ll later regret.” (P217)

Reason #2: We’re amazing at rationalizing our decisions to make us feel better.

We are great at rationalizing away our untrustworthy behavior, and often blaming it on something outside our control.

Our behavioral tendency is to coercively convince ourselves that we won’t fall victim to a specific temptation – even for the fifth or sixth time. “This unwavering trust doesn’t come from an abiding optimism,” DeSteno notes. “Its source is much more insidious.”

“It comes from a universal and deep-seated motivation to see ourselves as virtuous — a motivation that leads to our second problematic illusion: the rearward-looking whitewash.” (p.221)

We may tell ourselves that we won’t panic when the market corrects. Yet, when the correction comes, we will move our money to cash and tell ourselves it wasn’t because we were nervous about the market. It was just because, ‘the economy was getting soft, and we felt like we had to increase our cash reserves to protect our family.’ When we eat the chocolate cake, we tell ourselves, ‘our friend would have been upset had we not shared the cake at her birthday party.’

We develop a rationale that makes us look smart and virtuous.  Our minds whitewash our behaviors so that we will trust ourselves in the future.  This is important for our well-being because, DeSteno notes, “If we can’t trust ourselves to do the right thing in the future because we know we’ve let ourselves down in the past, our motivation to strive toward important long-term goals evaporates,”  (p.227)

So, what can we do about it?  Gain support from our six elements of wealth.

Wisdom: Avoiding Settings for Temptation

The first thing we can do is to avoid putting ourselves in situations where short term temptation is likely to overpower long term benefits.

If the issue is getting nervous when you see your portfolio has declined during a market correction, take steps to make it harder for you to look at your portfolio.  Have your spouse set up the password to your Fidelity accounts.  Stop subscribing to market alerts on your cell phone.  Don’t open your investment statements in down markets.

Wisdom: Rest and Pause

It takes a lot of energy to resist short term temptations. The more rested you are; the more energy you have at the beginning of each day. We all know how reactive we can become when we are overtired.  Get 8 hours of sleep a night.  Take time to pause each day by mediating, journaling, or going for a walk, ideally in nature.  The more rested and centered you are at the beginning of the day, the greater your power to resist doing something you will later regret.

Network: Use your network to expand your support 

Consider using your money and time to expand your network.  If you are trying to lose weight, consider joining WW to be part of a community of people focused on losing weight and living a healthier life.  If you never seem to work out on your own, hire a personal trainer.  If you accept the fact that you might panic in a down market, work with your JOYN advisor who can help you manage your emotions and stay the course.  Don’t try to do it alone. We are social animals and need the support of our family, friends, and community.

Self-Compassion: Nobody is perfect

No matter how hard we try, we are likely to fail at some point. When you do, remember that self-attack is never a winning strategy.  When we beat up on ourselves, we feel depleted and our capacity to make the next good choice is diminished.  Offer yourself some self-compassion. Talk to yourself as you would talk to a friend who had experienced a similar challenge.  Accept the reality of what you have done (avoid whitewashing), recognize that you are human and subject to human foibles, and strive to do better next time.


Investment Advisory Services offered through JOYN Advisors, Inc. Registered Investment Advisors. Insurance offered through JOYN Atlanta, Inc. Securities offered through Securian Financial Services, Inc. Member FINRA/SIPC. JOYN Advisors, Inc. and its affiliates are not affiliated with Securian Financial Services, Inc. This email and any attachments are intended only for the use of the individual addressed and may contain privileged and confidential information.
David Geller

About the Author

CEO David Geller co-founded the firm in 1991 and led the creation of Behavioral Wealth Management. Recognized on numerous prestigious "top financial advisor" lists, David is an in-demand speaker for professional groups and JOYN workshops. His writings have appeared in The New York Times, The Wall Street Journal and The Huffington Post.

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