Mindfulness and the Markets

I started a mindfulness routine last year. I was hesitant to try it out and always thought that meditation and mindfulness were a bit “woo-woo.” Now that I’ve been practicing for a year, I swear by it. It’s been a total game-changer for me, creating a new sense of awareness and calmness to the way I approach everything from work to play to family.

As with other areas of our daily lives, mindfulness can apply to how we think about investing.

Mindfulness is an ancient technique first used over 2,500 years ago. Modern science shows that mindfulness may be the most important mental skill an investor can develop. We can have the best of investment strategies, but derail these strategies by letting our emotions get the upper hand.

With market volatility on the rise, it is important to maintain a sense of calm amid headline chaos. Market volatility, though a normal phenomenon, accentuates the underlying risk and uncertainty of the markets which can cause fear, angst, and unnecessary stress. This, in turn, can cause investors to make decisions that are not in their long-term best interest.

So, how do we go about adopting a mindful approach to investing? Try using a few of these central mindfulness tenets: rationality, empiricism, patience, and humility.

Rationality

Mindfulness is about thinking clearly and with awareness, which can help us make rational decisions rather than emotional or reactive decisions. A well-designed investment strategy considers your capacity and tolerance for risk, your time horizon, and your personal financial goals. Being educated and knowledgeable about investing, and having a well-constructed strategy, will give you confidence and help you resist destructive behaviors that can be fueled by the hype of the daily news. Emotions should not be part of your investing strategy, but if you find yourself stressed or are questioning your approach, take time to step away, breathe, and clear your mind from the self-destructive clutter.

Mindfulness tip: Sit quietly and take three deep breaths while repeating the word “calm.” Follow the inhale, the exhale, and the space in between each breath.

Empiricism

Empiricism is the theory that all knowledge is derived from sense-experience. Modern scientists refer to this as being informed by observational data. Roger G. Ibbotson, Professor Emeritus of Finance at Yale School of Management, has been instrumental in turning investing into a more empirical practice, obtaining information through observation and documentation of patterns. Successful investing requires an informed and well-developed strategy based on empirical evidence coupled with extensive experience and knowledge of financial markets. Decisions based on sound data will be better than decisions based on guesswork. If your investment strategy is based on sound data and applied with your particular needs in mind, you can relax and not fall victim to second guessing, or making sudden moves that are detrimental to your financial health.

Mindfulness tip: Step outside, even if it’s just for three minutes. Look around, inhale deeply, be aware of sounds (the city, nature, whatever they may be), appreciate your surroundings. Be present in the moment.

Patience

Discipline and patience are necessary to achieve your long-term goals. Admittedly, it can sometimes take great patience and perseverance to stick with your plan. We can be caught off guard by unexpected, abrupt changes, as well as recognized trends that extend beyond a normal range. The recent market drops may feel very foreign given the extended run of the US equity markets for over a decade. The equity markets are subject to many forces not easily measured or identified. A rare or inconceivable event can instantly change the prospects of companies, industries, and economies. The variables driving stock prices are not always subject to narrowly defined limits. So, volatility is the norm, not the exception. Investors who are patient, and accept this reality and plan for it, are better equipped to survive the short-term chaos and build wealth over time.

Mindfulness tip: Unplug. Turn off your television and your phone. Be aware of your surroundings. If your mind wanders, focus on your breathing. Just be.

Humility

Benjamin Graham said, “The investor’s chief problem – even his worst enemy – is likely to be himself.” Evidence suggests that many investors operate in a haze of pride and overconfidence. There have been numerous studies on the topic of behavioral finance and how our behavioral biases can cause us to make unsound investment decisions. A humble attitude allows us to recognize our faults and avoid prideful delusions. Therefore, humility supports a more objective perspective. This is critical for us as investors, so that we avoid overestimating our knowledge and abilities and stay on track allowing a sound approach to achieving our long-term goals. Mindfulness can help us hold our thoughts and feelings lightly, enabling us to step back from those thoughts and feelings to be able to observe them.

Mindfulness tip: Ask yourself, what matters most to you? Your answer could form a powerful intention, for which you can align your thoughts, and guide your actions as you move through your day.

Having a well-designed investment strategy, geared to your specific needs and goals, combined with a regular practice of mindfulness, will go a long way in keeping you on course and less likely to react to day-to-day volatility. Practicing a mindfulness approach can be key to making sound investment, financial, and life decisions. I’m a believer and encourage you to give it a try as well.

Recommended reading: The Mindful Day: Ways to Find Focus, Calm, and Joy from Morning to Evening, by Laurie J. Cameron, and Winning the Loser’s Game by Charles D. Ellis, a go-to book of sound-mind investing with a compelling premise and timeless principles. For more on Winning the Loser’s Game, read our blog Plan Your Play, Then Play Your Plan.

Barbara M. Ollinger, CFP®

Barbara joined HTG in 1998. As a senior advisor, she counsels clients on their financial planning concerns and designs and implements investment portfolios to meet her clients’ objectives.

Barbara has been a CERTIFIED FINANCIAL PLANNER™ practitioner since 2007. She received her BS in Business Administration from the University of Maine and her MBA from the University of Connecticut.