Beach week for many families begins with the 4th of July. Being a Florida kid, summers at the beach were almost mandatory for me. Every year we saw the same families at the same beach and played with their kids. All day, every day we kept busy making sand castles, collecting coquina shells and sand dollars, fishing with sand fleas, and swimming in the bathtub temperatures of the Gulf of Mexico. I enjoyed playing with my sisters and the kids, but it was really cool when the moms and dads would get in the water, pull us around on rafts, bait our hooks, or race to the sandbar with us.
“Jaws” came out in June 1975. Because I was only nine years old, I was not allowed to see it. When we got to the beach that year, the kids were in the water, but not as many adults. We asked them why they wouldn’t come in, and some admitted, laughingly, that they were scared because they had seen the movie. “BUT IT’S JUST A MOVIE,” the kids screamed.
Triggering Our Vivid Imaginations
Later in life, I came to know the source of the adults’ fear as “probability neglect” stemming from “availability bias.” In better words, if it is emotionally intense, vivid, and easy to imagine, we view it as far more probable than it really is. When we obsess about its possibility, we reinforce our imagination, and make the problem worse.
Granted, movies are in the business of vividness and emotional intensity. Unfortunately, so is much of social media and even legitimate information sources. Simply through the suggestion of a scary image or scenario, many of us are led to believe scary events are far more likely than they are. Shark attacks still loom larger with beach goers than they statistically should. We should be more worried about rip currents, as was tragically seen in Apollo Beach, Florida recently.
For another example, remember the market crash of 2008? Many retirees sold their portfolios in a panic, believing the financial world had truly ended. Most of the media didn’t give them much else to consider. With the herd mentality running for the exits, how could the rational thinkers’ voices be heard? It was nearly impossible.
Taming the Fear
When faced with such fears, how do we tame them and strive for wise, rational decisions? One way is to gain experience. As described by Nobel Prize-winning psychologist Daniel Kahneman in his book, Thinking: Fast and Slow, the best experience is the kind that a) repeats similar sequences of actions and b) provides immediate feedback. Think of firefighters and emergency physicians. They get repeated exposure to similar scary events, with constant feedback on their success or failure. After a while, they build more courage through familiarity.
When it comes to investing, take dollar-cost averaging. Dollar-cost averaging happens by repeatedly buying or selling in smaller amounts according to a fixed schedule. Experiencing the ups and downs on a frequent (say, monthly) basis tames the fear of a single loss event. Over a long period of time, we learn that there isn’t as much to be afraid of as we imagined.
Facing the Fear
Another way to reduce fear is to tune down and turn off the vivid scary stories. We can choose channels mindfully. If we decide to pursue a scary scenario, we can double-check sources. We can seek information that contradicts the scary scenario, and double-check those sources too. We can imagine a more realistic, although less vivid, picture.
However, even though researching facts is helpful, we can also underestimate the power of imagination and drama to override our fact-based knowledge.
As a nine year old bookworm, when I got home from the beach, I was allowed to read “Jaws.” I also looked up “sharks” in my Encyclopedia Junior Brittanica. There I found that great whites are rare in the Gulf of Mexico. There was extremely little chance that one would darken our warm, shallow swimming zone.
But on my first beach day the next summer, as I inched my toes from the sand to the surf, my vivid imaginary Jaws was still waiting in the water. Determined not to be like the scaredy-cat adults, I plunged in. And gee, I actually lived to write about it.
For More on Emotions and Investing
For more on emotions and investing, check out Morgan Housel’s new book, The Psychology of Money, or read Chapter 7, “Emotional Threats to Mindfulness,” of The Mindful Money Mentality: How To find Balance in Your Financial Future.