162 – Using Emotions As An Investment Strategy

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162 – Using Emotions As An Investment Strategy

Learn why it’s important to understand emotions when it comes to making investment decisions.

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When we hear descriptions from news outlets about the stock market, newscasters love using big words that play on our emotions. Words such as skyrocketing and plummeting are often in their vocabulary. However, instead of playing on the emotions that words like this evoke, what if we used that information to help understand the stock market better?

Bob and Shawn discuss our much talked about “Cycle Of Market Emotions” chart. By understanding the rollercoaster cycle of emotions when it comes to the stock market, only then can we better anticipate and control our decisions because they are based on information gathered instead of emotions felt.

Mentioned In This Episode

Intro:
Welcome to the Christian Financial Perspectives Podcast, where you will learn what the Bible says about stewardship and finance. Here you will gain insight, wisdom, and knowledge of how to integrate your Christian faith with your finances. Here’s your Christian Financial Advisor’s host, Bob Barber and his co-host, Shawn Peters.

Shawn:
Welcome to another episode of Christian Financial Perspectives. We’re so glad that you decided to join us today, tonight, whatever time it happens to be, and whether you’re watching or listening, we appreciate it. If you haven’t subscribed yet and you enjoy content related to financial topics from a Christian perspective, we’d love for you to hit that subscribe button as well as maybe like and share this video. Today, we’re kind of excited to bring you an interesting topic.

Bob:
That’s the truth.

Shawn:
On using emotions as an investment strategy. Or, more succinctly, don’t use emotions in your investment strategy. So, Bob, do you wanna give us a little intro?

Bob:
Yeah. It’s kind of an interesting title, isn’t it, Shawn? Using emotions as an investment strategy. My goodness. You’re not supposed to do that. Well, I think we wanna start off with a scripture first of all.

Shawn:
Absolutely.

Bob:
Because I love this one from Colossians 2:8. Shawn, you’re always a good scripture reader. So I put the scripture in there. I want you to read that one for us.

Shawn:
Yeah, you do that. You do that to me, Bob. And then I make a mistake on a word and I feel like it lets you down.

Bob:
Well, see. That’s cause I fumble up many times with my southern, twang I have here.

Shawn:
Well, if you want, I can put my southern twang.

Bob:
You can. You being from South Carolina, you could, couldn’t you?

Shawn:
All right. So Colossians 2:8, “See to it that no one takes you captive by philosophy and empty deceit according to human tradition, according to the elemental spirits of the word – of the world – and not according to Christ.”

Bob:
Got you there, huh?

Shawn:
Yeah. You got me.

Bob:
Well, I know I got, I got you fumbled.

Shawn:
You got in my head.

Bob:
It’s okay. You know what? It shows people we’re real, we’re real here. You know what? But isn’t that a great scripture? You’re gonna see where this is going to apply so much today in what we’re gonna talk about and how using emotions as an investment strategy can be an actual strategy to use.

Shawn:
Yeah. It’s like on the news when they have all the, everything’s going bad and they have all the negative.

Bob:
Wait, we’re gonna get to all that.

Shawn:
Yeah, exactly.

Bob:
Okay. So another one, Proverbs 25:28.

Shawn:
“A man without self-control is like a city broken into and left without walls.”

Bob:
That’s a pretty powerful one, too. Did you come up with? I don’t think I came up with that one. Did you come up with that one?

Shawn:
Maybe. I don’t know. We lose track sometimes.

Bob:
So, but the main thing is that we’re going over here, Shawn, is that how many times markets are driven by emotions, it’s amazing. And even the algorithm programs, look at what words are being said on CNBC or any of these financial websites. And they trade off those words.

Shawn:
Well, and then there’s the…

Bob:
Artificial intelligence. Huh? The AI.

Shawn:
Then there’s the investor sentiment, which is measuring how people are feeling about the markets. So yeah, it definitely, it can be driven by that.

Bob:
And you know why?

Shawn:
Because emotion sells.

Bob:
Exactly. And you got that from my outline, right. Because emotions, they do. Emotions sell, and these financial headlines are meant to regularly stir our emotions. I mean, I see this over and over and we hear these statements every day. Markets are…

Shawn:
Tumbling.

Bob:
Then a few days later, markets are…

Shawn:
Skyrocketing.

Bob:
And then, the third one, investors waiting for the next shoe to drop? And then you’ll hear this, and this one’s this one that always makes you feel like, oh man, I really missed out. The markets are up 10% this week. Where were you? Okay, wait a second. Last week it was down 12%.

Shawn:
So you’re still not even back.

Bob:
Yeah. You know, or markets are sliding fast. Markets are soaring and you’re just, it’s just going all back and forth with all these emotional things. Another one I hear a lot is markets are collapsing and, or.

Shawn:
Bob, it almost, I mean, just hear me out here, I may be Conspiracy Theory here.

Bob:
I know

Shawn:
It’s almost as if a lot of the news segments are meant to like grab your attention. It’s kind of like the old, “Learn about this one weird trick right after this break.”

Bob:
Yep, yep.

Shawn:
You know, it’s just to get you to come back. It’s not real information so many times.

Bob:
Oh. And it can drive you crazy. You know, again, you hear things like the NASDAQ is plummeting, the S&P 500 is plummeting, stocks are rising in record numbers, and you just, you go back and forth, back and forth. But you know what, this is mass media, Shawn. And it’s really relying on sensationalism. And that actually is an editorial tactic that these media avenues use for you. And, we’re really warned in Proverbs 15:14 about this and that it tells us.

Shawn:
“A discerning mind seeks knowledge, but the mouth of fools feeds on foolishness.”

Bob:
So we gotta be very careful about allowing our emotions to get involved. But you know what other people’s emotions are getting involved, and we’re gonna show you how you can trade on these, well, I shouldn’t say trade, how you could invest. Invest, right. I don’t like that trading part, but how you can invest on, on these emotions, because all these events and topics in the news, they’re selected and the wording is selected to just excite the greatest number of viewers and readers. And they, they encourage, biased based on emotionally loaded impressions of events rather than being neutral. They don’t want That’s right. They don’t want, they don’t wanna be neutral because they actually, they can cause manipulation to the truth of the story and they can move you back and forth.

Shawn:
Well, I think it’d be a fair comparison, Bob. You could say typically Fox News is considered more conservative and CNN is considered more liberal.

Bob:
Yeah, exactly.

Shawn:
If you happen to see a news report from both of those networks on the same story, it’s totally different. You’d almost think it was two different events, many times.

Bob:
Yep.

Shawn:
So, and that applies to the markets as well.

Bob:
All right. So we’re gonna talk to you about how you can benefit from all this media sensationalism by having a good understanding of how the markets, and that’s where we’re gonna actually spend the last half of our episode on today and what drives traders and short term investors, they’re using all these emotions to go back and forth.

Shawn:
Having this…

Bob:
We’re gonna get this chart. Go ahead.

Shawn:
I was gonna say, so having a good understanding of, sorry, go back. So having a good understanding of how emotions over the short and long-term period drive those traders and short-term investors, that’s how you can potentially take advantage of this. Because again, when we say investing, we’re talking about the long-term. We’re not talking about the day traders, or what did the markets do this week? We’re talking about investing, which is the long term. Anything that’s not long term, it’s not investing. It’s just trading.

Bob:
Well, and actually when we look at this chart that we’re gonna show you, it is not based on day to day.

Shawn:
Correct.

Bob:
Because we even looked at this chart a couple years ago and I could see where around the end of 2021, we were being driven and this chart was a good indicator of how things were getting way overvalued. So we’re gonna put the chart up now. We’re gonna go over this chart and explain it to you. So if you look at this chart, it’s called the “Cycle of Market Emotions”. And I’ve been using this chart, Shawn knows, gosh, 10 plus years or maybe even longer. But this chart shows you, and I love all the little cute things that – this was Jenna, my daughter that works in the business with us, she helped put this chart together and you see the little smiley faces and the person frowning and all that. But you’ll notice this is the cycle that people go through where you’ve got optimism, excitement.

Shawn:
Starting from the left side. The very first part is optimism. And then you move to the excitement, it’s going up. And then the thrill and then the euphoria of everybody, “Buy! Buy! Buy! Buy!” You need to get into this, it’s gone up 70%. You need to jump in.

Bob:
That’s always the time. I remember last year, Shawn, when oil was at $120 a barrel. And I was watching again, CNBC, I watch that a lot. And everybody’s coming on saying, oh, you need to buy, man, it’s going to $200. I’m like, you guys are crazy. This has gone, oil’s gone from $20 or $30 a barrel a couple of years ago and even $50, and now it’s at $120 and you’re saying it’s gonna go to $200? So I look at that and I look at this chart, and that was the maximum financial risk is when everybody is saying, buy, buy, buy. And that was back in 2021 when that happened. And you’ll notice that’s when successful investors say, man, this is time to move some off the table. And then when you get into that low part where you can see everybody selling off. This was last June in the markets in 2022. Everyone was, I’m giving up. It’s hopeless.

Shawn:
Yep. Hopeless. I give up, get me out.

Bob:
Back in October, the same way.

Shawn:
Sell, sell, sell. I’m depressed.

Bob:
Yep. and what does a successful investor do according to this chart?

Shawn:
That’s when you have the best potential opportunity.

Bob:
That’s right.

Shawn:
It doesn’t mean that the markets won’t continue to go down anymore. Obviously, you never know when the actual bottom is, but using the emotional chart that says to the successful investor, okay, it’s time to at least move some of the capital back into play.

Bob:
That’s right. You got it.

Shawn:
And then it goes back up, and then you get back to optimism, and then it just, the whole thing repeats again.

Bob:
The whole thing repeats. Now, this doesn’t happen just every day, though. It happens over time that you really see the thing is getting way overstretched, and I was seeing it.

Shawn:
Could be over 18 months, it could be over a three year period, that going back up and the optimism could last quite a bit longer. I mean, as we’ve shared before in some previous episodes, the average bull market where the market’s going up is about four years. And the average bear market, where it’s going down is about a year. So, the cycle isn’t perfect on the timing on either side.

Bob:
So, the main thing is too, from this today is seeing how emotions play into things, but also getting a hold of your own emotions. And I think some good, some really good scriptures I saw as I was going through God’s Word about this were like 2 Timothy 1:7.

Shawn:
“For God hath not given us the spirit of fear, but of power and of love and of a sound mind.”

Bob:
“Of a sound mind.” So, we can see how emotions can help us invest and how we shouldn’t allow them to dictate to us.

Shawn:
So we have a few more scriptures as well.

Bob:
Let’s go and I’ll do one and you do one, and we’ll go back and forth. Go ahead.

Shawn:
So Proverbs 1:5, “A wise man will listen and increase his learning, and a discerning man will obtain guidance.”

Bob:
Proverbs 5:1-2, “Pay attention to wisdom. Listen carefully to my wise counsel. Then you will show discernment and your lips will express what you’ve learned.”

Shawn:
Proverbs 8:12, “I, Wisdom, live together with Good Judgment. I know where to discover knowledge and discernment.”

Bob:
And then as we come down to the very last one of Proverbs 10:13, “Wisdom is found on the lips of the discerning, but a rod is the back of one who lacks sense.” And we even have some more scriptures. But I don’t think we’re gonna have time do them.

Shawn:
We’re running low on time, but just to mention ’em, there’s some other ones if you wanna check ’em out. Proverbs 14:33, Proverbs 15:14, Proverbs 16:21, Proverbs 17:28 and 18:15. A lot of Proverbs.

Bob:
There’s a lot of Proverbs.

Shawn:
We’ll just put ’em in the description.

Bob:
That’s because Proverbs talks about wisdom. And I really think from over the years in reading Proverbs many times over and over, cause you know, there’s 31 chapters. And so those months that have 31 days, the ones that have 30 days, you can just read an extra chapter. Read a chapter day. And there’s so much in there about being wise and not allowing emotions to dictate to you.

Shawn:
That’s right.

Bob:
And so today, well hopefully we’ve showed you how you can take advantage of that.

Shawn:
Exactly. As a long-term investor. And remember, emotions are a good thing, but just like…

Bob:
They are.

Shawn:
But just like in Ecclesiastes, there’s a time for everything. And what you have to be careful of is allowing your emotions to dictate your financial decisions and how you invest. And instead, turn it on its head. Use those emotions to know when you should or should not be in the markets and when you should invest.

Bob:
That’s right.

Shawn:
So, hopefully this was helpful for those of you out there today. We will make sure we have a link to the chart in the description.

Bob:
And if you don’t wanna have to deal with all this, then we can help you at Christian Financial Advisors.

Shawn:
So you can reach us Monday through Friday from 8:00 AM to 5:00 PM call or text, (830) 609-6986. You can also check us out on our website 24/7 www.ChristianFinancialAdvisors.com. Bob, you have any closing thoughts?

Bob:
I don’t think so. I think this has been really good and informative and it’s a subject not many people talk about.

Shawn:
Well, thank you for joining us. God bless.

[CONCLUSION]

That’s all for now.

We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.

[DISCLOSURES]

Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.