Making Intuition Work for You in Investing with Denise Shull on Infinite Loops with Jim O’Shaughnessy

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Key Takeaways

  • Emotions are powerful and are required even for making investing decisions
  • Investors often make decisions, not on the data, but on how confident they feel about the implications of the data
  • “Everybody in the market has like fear of missing out or fear of future regret” – Denise Shull
  • The Two Stages of Portfolio Management:
    • Stage 1: Use your observations and experiences to decide what you believe
    • Stage 2: Take those beliefs and use them to determine your portfolio
  • A fundamental conflict between two emotions often creates a problem both in investing and in life
  • After a failure, you need to go through a kind of grieving process – ask yourself: What am I feeling and why am I feeling it?
  • Research shows that if athletes write about a failure and their feelings, they get over it more quickly than when as coaches say, they try to ‘shake it off’
  • Writing is a great mechanism for releasing emotion

Intro

Denise Kay Shull (@DeniseKShull) is a performance coach who uses neuroeconomics and modern psychoanalysis in her work with hedge funds and professional athletes. She is also the founder of The ReThink Group.

The Role of Emotions in Investing

  • Emotions are very powerful and are required for making decisions – even investing decisions
  • Investors often make decisions, not on the data, but on how confident they feel about the implications of the data
  • Emotions unfold in a layered way:
    • “There’s superficial feelings that everybody in the market has like fear of missing out or fear of future regret, then it gets into all kinds of personal feelings that are self-image and, success expectation.” – Denise Shull

Predicting Our Future Feelings

  • People often predict their future feelings but don’t realize they are predicting the future based on the past – which can be wrong!
  • The dominant cognitive behavior model states that humans think first, then behave
  • However, Denise’s theory states that most people predict their future emotions then make a decision based on that prediction especially if it involves fear
  • “The cognitive-behavioral model is still the dominant model in psychology, behavioral finance, and probably even neuroscience. I think it’s missing the point. What you’re doing there is you’re predicting, if you do this thing that you will avoid the threats of whatever you’re afraid of. And therefore you’ll be safer in the future. So the feeling is fear, but the future emotion prediction is more safety and confidence.” Denise Shull

The Two Stages of Portfolio Management

  • Stage 1: Use your observations and experiences to decide what you believe
  • Stage 2: Take those beliefs and use them to determine your portfolio

The Power of Emotions

  • Anger is one of the most powerful emotions
  • Often a fundamental conflict between two emotions creates a problem both in investing and in life
  • Denise resolves conflicts by coaching investors to center in on what they really feel, what they believe and are convicted in – then they’re able to use their intuition
  • “Research shows, if you have a feeling and purposely try to override it, it actually gets more intense because your psyche is trying to deliver you a piece of useful information that relates to your overall safety and survival. And if you ignore it, the psyche gets louder, the feeling gets worse. And what usually happens is people then act out the feeling and they blame the feeling, like if I hadn’t had the feeling, I wouldn’t have acted out. But the real problem is their strategy for the feeling, because they’re missing the fact that feeling has information in it” – Denise Shull

The Mind Body Connection

  • Dr. Sarno, author of Healing Back Pain- the Mind Body Connection, states that people sublimate all emotions they deem as inappropriate
  • The ones that humans sublimate the most are rage and hatred, because they are always seen as inappropriate by society
  • A person who was frequently criticized growing up, may be afraid of criticism in investing but not realize why

The Delusion of Certainty

  • Humans have a need to create order or at least the illusion of order
  • Uncertainty creates anxiety
  • Children grow up with experiences that creates storylines that describe how things should be and where they fit into the world
  • Over time, humans “learn their place” and how to react to our environment
  • As adults, people think they are reacting to the moment, but they’re reacting to this storyline and expectations
  • Premature certainty leads to mistakes

Imprinting

  • Tim Leary, a psychologist, believed that humans are imprinted early in life with either a winner script or loser script
  • When others feel you have been deemed as “special”, they treat you more special
  • We have this expectation of where we fit in relation to other people” – Jim O’Shaughnessy
  • To gain clarity about your reality, ask yourself: What am I feeling and why am I feeling it?
  • “You can explain anything in human behavior if you understand how the person thinks they’re feeling and what they’re predicting they are feeling.” – Denise Shull

Writing as Therapy

  • After a failure, you need to go through a kind of grieving process to help learn ‘what did I do wrong?’
  • Write out your view on a blank sheet of paper on a Saturday afternoon
  • Ask: What am I feeling and why am I feeling it? When you see both sides you get clarity about your reality
  • Writing is a great mechanism for releasing emotion
  • Research shows that if athletes write about a failure and their feelings, they get over it more quickly than when as coaches say, try to ‘shake it off’
  • Language is much more powerful than people believe
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Notes By EWerbitsky

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