The investment world can be an expensive place in which to find yourself, Sheryl Sutherland says, arguing the focus should be on the psychology of investor success

By Sheryl Sutherland*

“Every intersection in the road of life is an opportunity to make a decision.”
- Duke Ellington

Regret would probably be the strongest force in making financial decisions – we not only regret what we have done, we regret what we haven’t done. We focus our regrets on ‘unusual’ aspects, events leading to bad outcomes; in particular, actions we perceive as being ‘out of character’.

If you have followed someone’s recommendations, and strayed from your normal path, the regret will turn into resentment and anger. Think of a bad financial decision that you have made which you now regret.

Was it a decision to do something, or to refrain from doing something?

What was the role of chance?

One study came to the conclusion that people who regretted opportunities missed tended to take more risks than people who regretted attempts that failed. The risk-takers attributed little to luck but a lot to their knowledge and ability; they were under the illusion of control.

So, what is the key to financial success?

To make wise decisions you must have the right information, and combine and weigh its various components correctly. You must not ignore valid information in favour of thinking and judgemental tendencies that are dangerous in the investment world; for example, weighting the most vivid and recent information more strongly than heeding the lessons of history.

Investors must develop a mindset that helps them understand and adapt to the financial environment. Money is an emotional currency that relates to our individual need for security, power, respect, love, esteem and self-determination.

If you don’t know who you are, the investment world can be the most expensive place to learn. The psychic conflict between the temptation of profit and fear of loss makes investing a dangerous game for many people.

To change our financial behaviour we must learn new skills, moulding the knowledge of behavioural finance and neuro-science. Investors must focus on imperatives such as motivation, knowledge and understanding, wisdom and discipline – the focus is not on how to pick shares, get rich in the property market or get rich quick – the focus is on the psychology of investor success.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.