Bring Back Emotion: Using Psychology for Trading, Investing and Risk

‘How to Remove Emotion from the Equation’ or something similar were the headlines of countless articles and self-help guides over the last decade. The idea of making a decision based solely on data was attractive; it lets people think that they were making the best moves no matter what their heart was telling them.

What if I were to tell you that line of thinking is completely backward, and that some of the most successful fund managers in the world know it? Well, they know it now, thanks to my latest guest on the Success Story podcast.

Denise Shull, the founder of The Rethink Group, spoke with me about a new way to understand and embrace the value of your emotions — even your negative ones — to make better decisions, set probabilities, or succeed in previously unattainable areas.

Don’t get me wrong, this isn’t easy stuff. I even misunderstood what she was trying to tell me when we were speaking directly (which she laughed off as something she experiences daily). But by the time I was shutting down my video call, my brain was spinning with these new possibilities.

“I honestly think the analogy is round earth-flat earth. It looks like emotions get in your way, just like it looks like the Earth is flat. But it’s a misunderstanding of how it’s really working.”

Mind. Blown.

Back to the beginning

Denise isn’t my regular kind of guest. She wasn’t a hustler that tried a million different entrepreneurial startups before one finally hit big. She isn’t going to reveal the five secrets to social media management or talk about the vulnerabilities in your cyber security.

Her degree in neuro psychoanalysis led her to a revelation about how feelings impact performance and her personality gave her the courage to talk about it.

Things snowballed almost automatically, and one speaking gig led to another, which led to a book deal and an international performance coaching firm. She’s led Olympians to gold and bankers to green, hesitantly proclaiming that she can fix any performance problem, anywhere, with anyone.

By the time we were finished, I believed it.

Anticipatory affect

The biggest point that Denise tried to make, and one that I think a lot of people will have trouble with, is that you aren’t ever making a decision based on an analysis of data.

What?

“You think you make a decision based on some analysis, you don’t. You make the decision on how you feel about the analysis, your confidence in the outcome that you’re predicting.”

This is called the anticipatory affect, which is the ‘emotional state that people experience while anticipating significant outcomes.’

It’s also why you can’t simply remove emotion from the equation — emotion is the whole thing! With the knowledge that feelings will impact the decision whether you like it or not and that they are shaping the analysis in the first place, you can start to gather additional information that may not have been immediately present.

So many high-level decision-makers preach the importance of good data. This is how you can guarantee it.

The brain’s only job

You see, the brain is designed for just one job: keeping us safe. That’s the driving factor behind every decision you make or impulse you have. It takes your past experiences, recognizes patterns, and predicts outcomes. But it specifically, according to Denise, predicts how a certain path will feel.

Take an investment decision, for instance. If it starts to look wrong, you wouldn’t want to have to present that to the board. It’s embarrassing, you might lose your job. It would feel unsafe.

“So people behave in what looks like confirmation bias. They only see the data that supports whatever their viewpoints are. Not because they’re just programmed to do that, but because at the moment they see conflicting data, their brain is predicting the future emotion that is unsafe.”

Circumvent cognitive bias

Now, I knew thought I knew what cognitive bias was, and how important it was to recognize it in our decision-making. But when talking to Denise, suddenly I wasn’t so sure.

For a long time, these biases have been taught as unavoidable. They are built in, inevitable. But she doesn’t see it that way. The way to avert a bias like that — confirmation, recency — is to understand that it comes from a negative emotion attached to the outcome your brain is predicting.

Suddenly, by embracing how you are going to feel, you can start to gather more accurate data about why you are holding firm on an original prediction or experiencing fear of missing out (which she calls “fear of future regret”). You can course correct sooner, and start eliminating those biases that previously seemed unbeatable.

Fear is trying to help us

Here’s something we can all relate to. Have you ever felt like the only reason you went to work was because you didn’t want to get fired? That’s sort of the surface of understanding how your feelings can impact decision-making.

Some people might say that is a purely data-driven choice. If I don’t go to work, I will lose my job, and make less money. But if we’re being honest with ourselves, it isn’t just if A then B — it’s more nuanced.

If I don’t go to work, I’ll feel embarrassed when my boss calls me. If I lose my job, my child’s well-being will be in danger, which scares me. If I lay on the couch all day I will be angry with myself.

These feelings might be called negative, but they are trying to help us. They are a reaction by the brain to try and keep us safe.

Suddenly, when shaping it with this simple decision, you start to understand what Denise means. You start to see the curve of the Earth, so to speak.

Analyze, don’t control

“So when you have something that really tweaks you and you get this really strong emotion, everybody says control the emotion. I say, no. Analyze the emotion before you act.”

It’s not about suppressing the emotion or trying to release all negative thoughts. These feelings are based on past experiences and your knowledge of the decision in front of you. They are just more data to be analyzed, and more factors to go into the equation.

It’s all about your childhood

Okay, that’s a bit misleading. It’s not all about your childhood, but like so many other things, what happened in your youth can have drastic effects on your feelings about certain decisions.

If you were criticized every time you tried something new, you may be more hesitant to go against the market, trying to avoid that feeling of shame that you had so many years ago.

If you have failed at a big tournament once, you might subconsciously perform poorly in Olympic qualifications so that you don’t have to deal with disappointment and embarrassment on an even bigger stage.

Being able to remove those older patterns and instead recognize just the one that stands in front of you allows you to essentially, do what people have been preaching and make the decision based solely on the data.

“If you can understand your own anger and not judge it. Both in the moment and as it relates to what’s happened to you in the past, it is a goddamn f — ing superpower.”

One piece of advice

A lot of people are going to read this, or listen to my conversation with Denise and not understand how to put it into practice. I asked her for one thing that the audience can take away and start acting on right away, and what she said was simple:

“Don’t judge yourself. Just don’t judge yourself. Stop being self-critical, stop self-doubting. Just try to understand what you’re feeling, why you’re feeling it, and look for that information.”

I’m going to try it in my own life. Instead of trying to squash down the fear that I feel about a big decision, I’ll attempt to understand where it’s coming from. Maybe there is a good reason for it, and maybe it’s just because of a mistake I made in the past. But it’s just more data to use, and that can’t be a bad thing.

Final thoughts

Honestly, I’d like to spend a little more time with Denise because I feel like we just barely scratched the surface of what she has to offer. She mentioned that there will be another book coming out at some point and I can’t wait to read it.

If you want to check out the entire conversation and let her explain this a lot better than I ever could, head over to the Success Story YouTube channel. There are hundreds of other conversations with thought leaders, executives, and entrepreneurs covering all sorts of topics.

Otherwise, thanks for reading and I’ll see you next week with another great guest!

Also published here.