The Hindu Business Line : It’s about emotional, not financial return

Last week, I placed a limit buy-order on Geojit Financial. Only half my order was filled. Later in the day, when I logged-in to check how my portfolio was doing, I found that Geojit had hit the upper circuit. I was pleased that I had timed my entry well. But I also found myself wanting the stock to go down because I wanted the rest of my order filled! The psychological part of my brain found it amusing. As a rational being, I should have wanted the prices to go up as I was now holding Geojit shares. Yet, here I was rooting for a decline in price. Why?

Emotional fulfilment

Behavioural psychologists seem to have an answer to my intriguing thought-process. Experts in this area believe that we do not invest for making money! Rather, we invest for emotional return. That is, our primary objective is to be emotionally fulfilled.

We may feel proud, for instance, that we completed a difficult task even though it did not fetch us any money. In fact, behavioural psychologists claim that money is only a currency to buy us emotional fulfilment.

Perhaps, this explains my behaviour. It would have been more fulfilling if my order was entirely filled before the stock took off. That it did not made me feel miserable. My emotional return was incompatible with my financial return. I am not the only one with such warped mind. When I was discussing with my friend, he shared an interesting instance which embodied similar behaviour.

Thought process

He owned a few thousand shares of Reliance Natural Resources. He sold half of it between Rs 100 and Rs 105. After a small period of consolidation, the stock broke out and moved quickly to Rs 190. My friend was praying for the stock to decline! Why?

It was emotionally unfulfilling for him to see that he had wrongly sold half the shares at a lower level. A price decline would have proved him right. Has your thought process ever been so self-destructing too?

(The author is a Chennai-based investment strategist.)

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