One of my favorite financial writers, Ben Carlson, recently published an article about The 2 Variables That Drive Stock Prices.
The summary is that stock prices are driven by “one part fundamentals and one part emotions”.
What if you could reduce your reliance on emotions in the face of market volatility, while the crowd lost their collective hat?
Meditation Practice Can Increase Your Stock Market Returns
I’ve been doing at least one session of guided meditation every single day since last year. If I had to sum up the biggest benefit I’ve gained, it would be the realization that negative experiences and positive experiences are both simply experiences.
It’s not that I don’t enjoy positive experiences, and I certainly don’t look forward to the negative ones, but lately there has been a level of equanimity to my life that I never had before. Negative emotional reactions are both shorter in duration and smaller in scale because of this recognition. And when I am truly enjoying something, I feel far more present than I ever was before.
Even if only for brief moments throughout the day, I’ve gotten better at eliminating the need to control my external environment and have often caught my internal dialogue getting carried away.
“This is how it is right now” has become a guiding principle during difficult or stressful moments (including a recent stock price plummet for one of my biggest investments).
I use the Waking Up app by Sam Harris. The app is equal parts guided meditations and courses, as well as the theories behind the meditation. All delivered in a clean, concise app right in my pocket.
For the purposes of this article, meditation is about recognizing that things are already good enough as they are. Any emotion is more ephemeral than it seems at first glance. In fact, emotions can be just as fleeting as any other sensation like a sound or sight. Being happy or unhappy can be as temporary as a car driving by your open window. You know the sound from the car will disappear and you won’t hear it once it is far enough away.
Thoughts, hopes, emotions, memories, anxieties, and sensations are just like that car. From a matter of experience, you know they will change and go away and may come back later or take on new meaning. But in our minds we seem to put more emphasis on negative examples of all of these things and identify ourselves with them for long periods of time. If left unchecked, we can dwell on them all day, all week, or even our whole life.
I know I used to and still do to some extent. But I have gotten markedly better at recognizing when this is occurring and falling back from the mood, emotion, thought or experience.
So how can this realization improve your stock returns?
Well, if emotions can be removed from the equation (or at least tempered to a greater extent), a whole bunch of positive investment habits can begin to accrue:
- A greater propensity to “buy and hold” which is the single greatest driver of better returns
- Decreased taxes/fees from buying and selling too often, especially from short-term capital gains taxes
- The desire to try and “time the market” is reduced
- FOMO doesn’t occur as much when the market is soaring so you avoid paying a premium on overvalued equities
- Selling at a loss is less likely to occur because panic during price drops affects you less
- Dividend re-investments have time to compound
One of my favorite examples for the strange things people do when it comes to owning stocks is they buy less when the stock price drops, and buy more when the price increases. From a superficial level, this makes sense. There’s a recency bias at play that makes you think what happened today will happen tomorrow. There’s herd mentality. Greed takes over.
Remembering that your consciousness has no prior condition, good or bad, is an effective way to remain more stoic in the face of adversity such as a market crash.
It hurts to watch your money “disappear”, but unless you sell, you haven’t lost anything. And on a long enough timeline, equities overwhelmingly perform with a positive trend line. So when something drops in value for a few days or weeks or even months in a row, you might not want to put your money in it.
However, this is flawed logic because the item you want to purchase just went on sale. So if you’ve done your research, and you believe in the company, stick to your plan and get yourself a bargain.
Use these common sense questions to pick your next stock or mutual fund. (6 min read)
When the pandemic was wreaking havoc on the U.S. Stock Market, we saw the fastest selloff in history occur. Counter-intuitively, I was able to pickup some great deals during this time.
Of course, we are only half a year past that horrendous realization, and still in the throws of the pandemic, so the story is not complete yet. This is all easier said than done. We may very well be too close to the eye of the storm to see the size of the destruction that will still ensue. But no matter what happens over the coming year, or years, I’m confident in the ability of humans to power the economic machine, just like it has for millennia. So I’ll keep buying stocks.
On the other hand, meditation also reminds you to not get carried away in the euphoric feeling that comes from a great week of gains on Wall Street. It helps you to slow down, breathe, remember your values and principles, and take more rational actions in your life in general.
Happy meditating and investing!
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Disclaimer: I am not a financial planner and I am not a therapist. The advice here given is strictly my opinion.
All commentary on this website reflects my personal opinions and should not be regarded as a description of advisory services, mental health advice or promise of performance.
The views reflected in my articles are subject to change at any time without notice. Please seek professional help for your finances and well-being.