Stop Worrying Yourself Out of Profits – Part 1

By Dr. Van Tharp

Every time Michael thought about entering the market he said to himself “But what if I lose?”

Those thoughts often paralyzed him from action or delayed his entry so long that many opportunities simply passed before he would pick up the phone. When Michael did open a position, all he could think about were negative consequences. “My system is wrong at least half the time–what if this is one of those times?”

He couldn’t sleep because his mind was racing with those “what if” thoughts. Michael suffered from a chronic “disease” of the mind called worry. Research suggests that both a biological component and a psychological component of stress impair human performance and that it is useful to consider these two components separately.

The biological component is the fight-flight response, a primitive reaction that early man developed in order to survive. This physiological arousal causes people to narrow their focus and put more energy into what they are doing. It might help you run faster or fight more aggressively, but it does not help you invest more successfully.

The psychological component of stress is what Michael was doing: worrying. It involves a concern for one’s performance and its consequences. It is the expectation of failure and the negative self-evaluation that accompanies failure.

Worry is probably the precursor to the fight-flight reaction. Constant worry or intense worry certainly produces physical stress and, as such a herald, worry might be expected to only have a mild effect on performance.

Research, however, shows the converse is true. Though physical stress at its extreme might result in death, worry generally has a much greater effect on human performance than its biological counter. Much of the experimental research on worry has dealt with a common problem of students–their concern about performance on an examination.

Students who worry about test performance are likely to do poorly compared with students who are not concerned. The worry has nothing to do with preparation for the examination–it is simply the fear of poor performance. As a result, concerned students spend at least 25% of their conscious thought worrying about their grades on the examination rather than devoting their full effort to talking the examination. Michael, the investor who cannot sleep well because of his concern over possible negative consequences, will perform as poorly as the worrying students. His ability to forecast price movement or select good investment opportunities does not matter. His constant worry about his performance ensures that he will not achieve optimum results.

Dr. Van Tharp

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