Gaining an Edge: Emotional Intelligence and Investing
Emotions and Investing, two words that should never be used in the same sentence… Or should they?
It may seem that financial wisdom and emotional intelligence come from two entirely separate camps, one thoroughly immersed in data and trends, and the other a hallmark of nuance and unpredictability. Consider how many high-level investors have paled at the term ‘emotional investing’, or have wagged their fingers in dismay at clients who have panicked at the first sign of market volatility.
But what exactly is Emotional Intelligence, or EQ?
Science defines it as the ability to discern and regulate one’s own emotions, as well as successfully interpreting those of other people. If we apply EQ during our personal interactions, we are guiding our behavior with discipline and focus. Emotional intelligence is a cognitive muscle that we must practice to make stronger. It’s a versatile ability that allows us to keep emotions in check, develop empathy, healthier personal relationships, and make wiser decisions by correctly understanding human behavior.
As a species, we have developed to solve complex social problems, changing our behaviors to suit circumstances. This adaptability, without a doubt, reduces reliability, as humans will alter their behaviors to tackle their changing environments. In a word, we’re fickle.
So how does a financial advisor succeed in face the thousands of years of a brain that’s socially evolved to avoid stressors? The answer is emotional intelligence.
By being able to regulate their emotions, and by recognizing the nuanced feelings of their clients, a wise investor is able to steer clear of the murky waters of psychological panic and sail on to the seas of wise action. For every investor who has ever scoffed at the idea of empathy, there are a hundred more who will tell you that understanding human behavior is part and parcel of accurate market predictions.
Emotional intelligence, a once-derided buzz term, is now common parlance for financial advisors everywhere. Humans are not automatons, and a competent advisor knows that investments are often based on client factors as arbitrary as gut instinct and personal fears. They know that a large portion of their job is the ability to influence positive decision-making in a domain that many clients find overwhelming.
When it comes to financial matters such as estate planning, divorce, or unexpected setbacks, emotions are guaranteed to run high. This is the moment where emotional intelligence can be a saving grace, and a force for calm.
An advisor is dependent on human-to-human contact, and success in those interactions relies on their ability to recognize personality traits like fear, insecurity and overconfidence. They must make multiple difficult decisions on behalf of the clients. Without a thorough understanding of human behavior, of how their clients tick, they are at a disadvantage.
Knowing the markets and learning about finances is a necessary endeavor for all investors, but in reality, there are millions of influences that affect the stock market, and no single person can prepare for them all. Emotional reactivity, however, is entirely under our control, and this ability to master our emotions may be even more important than market knowledge.
In fact, some experts suggest it plays a larger part in overall success in life than even your IQ. Science has found concrete evidence for this, as in this Stanford Study that shows how emotions are one of the largest influencers of investment success, regardless of investing knowledge.
The elusive quality of EQ is what allows us to not only express and control our emotions, but it is that highly developed ability to comprehend, interpret, and respond to the emotions of others. It can help us develop better relationships through self-discipline, self-awareness, rational judgement and creative problem-solving. But it’s not something that you learn in school.
So where does one go to study EQ?
Since 2013, Select Advisors Institute has provided comprehensive executive coaching and sales training to advisors of all experience levels around EQ development. From Financial advisors to CPA’s, lawyers to hedge fund managers, we have collaborated with High IQ professionals around their Emotional Intelligence training.
But prior to embarking on sales coaching and working with experts, you may want an easy way to get a quick burst of EQ for you and your team. Want to know how?
Start with your bookcase! When was the last time you read some fiction?
Studies in neuroscience suggest that reading literary fiction helps people to develop empathy and critical thinking. Reinforcing new neural pathways by mentally experiencing a diverse range of situations helps expand our cognitive brain power. That is to say, the act of reading, if it is the right material, can cultivate the qualities and social skills that are the hallmarks of a successful investor.
We all have bookcases crammed with “how-to” manuals. CEOs and business giants (Elon Musk, Bill Gates, and Warren Buffett to name a few) often tout the virtues of reading, providing exhaustive lists of recommended books. However, their suggestions are almost exclusively nonfiction. Are they missing the point?
Science says they are. Social psychologists at the New School for Social Research in New York City “found that after reading literary fiction, as opposed to serious nonfiction, people performed better on tests measuring empathy, social perception and emotional intelligence – skills that come in especially handy when you are trying to read somebody’s body language or gauge what they might be thinking,” the New York Times reported.
The reason for this, the researchers suggested, was that literary fiction “often leaves more to the imagination, encouraging readers to make inferences about characters and be sensitive to emotional nuance and complexity.”
The Right Stuff
The key to developing EQ is not reading, but what book you’re reading. In this study, the psychologists specifically cite literary fiction over nonfiction as the more beneficial cognitive brain builder for developing emotional intelligence. They state that reading fiction creates increased social acuity and a sharper ability to spot the motivations of others, in turn helping the reader become better at influential communication and maintaining quality relationships.
Fiction succeeds in a business environment because the imagined players and narrative can give stressful situations a landing pad. The plot allows the reader to process difficult discussions and issues in a transparent way. In corporate America, business is easily labeled as ‘good’ or ‘bad’, an unfortunate departure from global reality. Nonfiction supports this dualistic worldview, applauding right maneuvers and deriding poor decisions, allowing very little room for discussion.
Quality literary fiction smashes those stereotypes through complex narratives and stories that skirt grey areas with the skill of a philosopher. Main characters come from different backgrounds and diverse viewpoints that are at odds with one another, but are equally rational. Emotionally charged situations are shadowed and difficult to navigate, no matter how prepared the protagonist is. Risk is inevitable. Mistakes will be made. Sometimes there is not a happy ending, or an ending at all.
Investors and financial advisors won’t come across many decisions in life where the right action and the wrong action is clearly outlined. Reading may just give them the edge, and an enhanced skill to successfully maintain and implement strategy in the face of competing but equally valid viewpoints.
In work, is a loyalty to personal dignity a triumph or a trap? Kazuo Ishiguro’s book Remains of the Day will provide a broader context than you imagined possible. Is society’s obsession with consumerism a modern luxury or a toxicity?
You may come away with a different stance after reading Don DeLillo’s White Noise. Is it better to know, or be ignorant, of a situation you cannot change?
Margaret Atwood’s The Handmaid’s Tale, though set in the future, tackles this with an urgency that is entirely relevant to our modern day.
These questions are unanswerable, but that is the beauty of fiction. All contain valid viewpoints, and no answers readily evince themselves. What we gain from this is simply perspective, and in turn, a nimbler mind.
Flexibility and Decision-Making
Studies show that reading literary fiction is a productive way to strengthen the brain’s flexibility, in essence to remain open-minded while processing divergent information. This is an essential skill for successful decision-making.
Human nature, as stated by researchers, has a need for something called “cognitive closure,” or a desire to come to a quick conclusion in order to avoid ambiguity. People who make rash decisions are avoiding uncertainty and seeking cognitive closure. They also seek less information and make decisions based on narrower viewpoints. This is a double-edged sword, as cognitive closure provides immediate relief, but also makes the individual overconfident in their flawed mindset.
Literary fiction often deals directly with a lack of closure for their characters, and individuals who read fiction are better able to make investment decisions in the face of ambiguity. They lack the pressing need for cognitive closure, giving them the ability to consider large amounts of information comfortably, slow down the decision-making process, and create tactful solutions. When it comes to investors and risk tolerance, this skill is critical.
A vastly important skillset for financial advisors who deal with clients in estate planning or other tough conversations, researchers also found that individuals who read are more willing to tackle difficult discussions. When it comes to understanding clients and their financial goals, emotional intelligence is fundamental. Literary fiction readers are more willing to discuss empathy, consider the feelings of others in a public setting, and demonstrate quality listening. They are more likely to develop cognitive acuity and in-demand emotional skills that provide a better work environment and builds confidence in clients.
But the benefits don’t stop there. For investment strategies on a global scale, literary fiction can help us understand worldwide trends and identities. Want an insider’s view into Russian nationalism? Pick up anything by Tolstoy. Trying to understand Europe’s nostalgia for a lost Golden Age? Cervantes is your man. Perhaps you would like a fresh perspective on Brexit through the lens of Britain’s murky political past? Hilary Mantel’s Wolf Hall is an education.
EQ is Good for Your Finances
With studies showing that EQ is a deciding factor in how successfully investors manage stress, interact with their colleagues, and make decisions, it’s little wonder that so many finance professionals are seeking new ways to boost their emotional intelligence. The good news is that it may cost you only a library card. Research provides ample evidence that reading literary fiction is one of the most effective ways to develop this elusive ability.
Creating a strong EQ foundation, coupled with financial acuity, will empower you to be more confident in your decision-making and investment savvy, contributing to the success of your clients.
For clients, the benefits of utilizing a financial advisor in emotionally charged situations cannot be overstated. An advisor with high EQ, who is able to maintain impartiality and has experience navigating the markets, can also navigate their clients’ rocky mental states, helping them to achieve equanimity.
While traditional knowledge is associated with leadership and investing success, it is not enough. Successful investors and financial advisors are not just intelligent–they have a high EQ. The next time you have a free moment, reach for your old college copy of Chekhov.
Your clients will thank you for it.
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Want to speak with us about Sales Training and Emotional Intelligence Coaching for you and your team? We provide GROUP as well as INDIVIDUAL coaching to help your team go from good to great!
What are some components of Emotional Intelligence training and coaching?
Using more intuition to make innovative decisions
Soft skills in client and prospect situations
Active listening skills
Emotional connection with clients
Conversation management
Self awareness and management
High impact questioning skills
Nonverbal reading of others
Empathy and social communication skills
Managing disruptive emotions and impulses
Maintaining standards of honesty and integrity
Innovativeness: Being comfortable with and open to novel ideas and new information
Self-Motivation
And a LOT more!
