Integrated Investing

by Bonnie Foley-Wong

  Make room for the possibility of good emotions about the opportunity.

  Take pause with emotions of attraction when faced with an investment opportunity. Balance these positive emotions with analysis. Weigh these emotions against caution and make a decision with your eyes open.

  The analytical, logical, rational part of our brain may or may not agree with the emotional and impulsive part. When we’re faced with an investment decision and uncertainty, our previous experiences and their emotional footprint will cause us to respond in ways that may blind us to the opportunities or the risks.

  Reacting impulsively to an emotion may cause you to skimp on due diligence. An impulsive response to what appears to be a positive emotion, as well as a lack of awareness about a negative emotion, may cause you to ignore warning signs and end up taking undue risks. Reacting impulsively to what appears to be a negative emotion or ignoring a positive emotion, meanwhile, can cause you to pass up a good opportunity and miss out on what could be great positive change.

  Some emotions you encounter in the investing experience may make you feel good. Follow them and more good feelings will follow, such as a positive investment experience with entrepreneurs you enjoy working with and who have a positive impact on the world. On the flip side, you may experience some emotions in investing that make you feel bad. Pay attention to these warning signs and you may avoid a bad investment decision, therefore yielding a good outcome. Ignore them and make an investment anyway and you could be making a bad decision. But be aware of mixed emotions, such as uneasiness about financial or operational issues with a venture. Such emotions can be warning signs, not only of potential problems with the venture, but also of bad fit or lack of readiness on your part as an investor.

  If some of this sounds unclear and arbitrary to you, then I’ve listed some examples in the following table. Developing emotional awareness in investing is the skill of telling the difference between good and bad emotions that you should follow from those you should ignore.

  This table is by no means exhaustive; rather, it is meant to be illustrative. Emotional awareness can’t be developed overnight based on hard-and-fast rules. It’s something you develop over time through self-awareness, self-reflection, insight, and practice.

  Good Emotions: Examples Follow Them and Make an Investment Ignore Them and Make an Investment

  Excited

  Joy from working with the entrepreneur

  Positive feelings about the impact the venture can have on the world

  Confident about the entrepreneur and the opportunity

  Proud to be investing in the entrepreneur and venture

  Good outcomes Bad outcomes (missed opportunity)

  Impulsive (would feel regret later)

  Invest based on positive emotions without doing any due diligence

  Bad outcomes Good outcomes (avoid bad investment)

  Bad Emotions: Examples Follow Them and Don’t Make an Investment Ignore Them and Make an Investment

  Skepticism about the entrepreneur and the opportunity

  Feeling pressured (by time or goals set)

  Negative feelings about the impact the venture can have on the world

  Guilt or feelings of obligation

  Good outcomes Bad outcomes (make a bad investment)

  Fearful, therefore avoid risk taking and investment opportunities altogether

  Bad outcomes Good outcomes (avoid bad investment or, in the case of not being fearful, become more open to opportunities)

  People pleasing or guilt can cause us to forget our own needs as investors in our desire to try to meet an entrepreneur’s needs. One investor I spoke with, Antoinette, was connected to an entrepreneur who was seeking investment for her business. She did not want to invest in the business, but she liked the entrepreneur, so she tried to introduce the person to other investors for whom she thought the opportunity might be a good fit, but that proved unsuccessful. Antoinette was committed to supporting women entrepreneurs and leaders, so out of a feeling of guilt and a sense of obligation, she invested in the entrepreneur’s business. The investment was not a good one for her and she did not get her money back. Here, Antoinette went against her analysis and intuition to follow her emotions—namely, a feeling of guilt and a desire to please this entrepreneur—and it backfired on her.

  Being fearful can cause us to miss opportunities because we’d rather not take the risk or don’t know how to do so purposefully. This emotion often keeps people who are new to investing from taking the first step. Fear might be the response to uncertainty and risk, or fear might be the emotion resulting from feeling ill equipped to invest. Identifying the fear, determining whether there is a real risk at stake, and determining how to address the fear (by gathering more information, learning new investing skills, investing with others, or getting more practice and experience with investment amounts that won’t break the bank) will help you make an appropriate decision and move forward.

  Positive Emotion Can Have a Positive Impact on an Investment Decision

  After meeting Catherine Dahl in 2012, I followed her progress as CEO of Beanworks Solutions, an accounting workflow automation company. I happened to bump into her at an event in 2015, and upon learning that Pique Fund had launched and that I was looking for ventures to invest in, she invited me to invest in her company. I thought she had already raised some investment and that the minimum amount was higher than what the fund was prepared to offer. Catherine told me that she had completed a seed round of investment, but that she loved what Pique Fund stood for, in particular investing in women entrepreneurs, and that even though she didn’t need additional investment, she felt she could make room in order for the fund to participate. Catherine had impressed me since the first day I met her, and I had seen her mature into the CEO role and grow her business over the years, so I was excited about the opportunity to invest in her and her business. She was committed to maintaining at least a 50% female workforce in her company, something I was pleased to hear about. Her influence went beyond just her company and into her value chain. In a recent conversation with a potential partner to her business, she pointed out to the CEO that his senior management team was lacking women.

  Because of the positive feelings I had about Catherine and her company, I decided to propose the investment to the committee and fellow board members. We did our due diligence and, finding no reason we should not invest, completed the deal within three weeks.

  This is an investment that I feel good about. I look forward to updates from Catherine, and I’m happy to be working with her and supporting her business.

  These are only a few examples of emotional reactions in investment decision making. Many other situations are possible and may arise, so you need to develop an awareness of what emotions are leading your decisions.

  Greater Emotional Awareness Can Help Us Make Better Decisions

  The goal is to develop greater awareness about our emotions when faced with an investment decision, and to learn how to use that emotional information to guide our investment decisions.

  Set aside the time to focus on only your emotions. The thoughts you keep in your mind should revolve around what you want to do, what you desire, and how you’re feeling emotionally, not around what you should do and what you are thinking about doing. Try these exercises and practice them regularly before making an investment decision:

  If you find yourself thinking or analyzing the situation during this exercise, pause, be patient, and redirect your concentration to your emotions.

  Develop a meditation practice to calm your thinking brain and build your emotional awareness. Take a deep breath followed by an ohm, as is done in yoga, or try one long hum to redirect your concentration.

  Close your eyes and take three deep breaths.

  Concentrate on your emotions and ask yourself, “What do I want?”

  Ask yourself what you are feeling emotionally. Take the time to pause and check in on what emotions you’re feeling. Write down
the first thing that comes to your mind. The point is to not overthink it.

  Investor Quote: Emotions in Investing

  “There was something about the teams and opportunities that spoke to my heart as much as my mind—to such an extent that I wished for them to succeed badly enough to be irrationally optimistic about their odds of success. I think it’s rare for an investor to make a commitment of his or her time and capital when that emotional resonance is missing.. . Having the opportunity to partner with them as they build the companies they envision is a true joy. That emotional resonance leads to tight alignment with the founders’ vision, goals, and preferences and a fantastic relationship, because our feelings of success are inseparable from their success in building their companies.”7

  Satya Patel , venture capital investor, ex-VP of product at Twitter, and former Google product manager

  How Our Bodies Affect How We Approach Investment Risk

  The physiological state of our bodies can affect our decisions. If we are hungry, thirsty, or tired, our attention shifts toward satisfying those basic needs rather than paying attention to the investment decision at hand. Before making a complex decision about investing, make sure that your basic physiological needs are met so that you can fully concentrate and be attentive to and aware of the analytical, emotional, and intuitive information available to you.

  Research by former Wall Street trader turned neuroscientist John Coates indicated that higher levels of testosterone were evident in a group of traders just before they made risky trades. As they made profitable trades, their testosterone levels went up, prompting them to make increasingly risky decisions in pursuit of ever-higher profits.

  Coates also studied the role played by cortisol, the hormone released in response to stress. He found that cortisol levels were unaffected by trading losses themselves and instead found a relationship between the chemical and high variances in trading results and uncertainty in the markets. In other words, cortisol levels rose when there were big swings between the traders’ profits and losses. Too much uncertainty and stress causes too much cortisol to be released, prompting fight, flight, or inhibition of action, all of which interfere with rational decision making.

  The good news is that, according to Amy Cuddy, a social psychologist and associate professor at Harvard, we can proactively change our hormone levels and therefore our propensity for risk and response to stress in decision making. By adopting certain physical positions—“power poses,” as she calls them—we can increase testosterone and reduce cortisol levels in our bodies. This can help you increase your appetite for risk, could cause you to make better investment decisions, and can help you cope better in stressful situations.

  Awareness of Your Body in Investment Decisions

  Improve your awareness of your body by observing your physical reaction to different situations that involve uncertainty or require you to make a decision. Take note of your physical state before making a decision. Are you calm or restless? Are you tired or energized?

  Pay close attention to whether an investment opportunity energizes you or makes you feel like you are being depleted. Notice whether you feel physically energized to be working with a particular entrepreneur or not. A venture investment is a relationship of give and take. Too much give and you can feel drained of your energy. An exciting venture investment opportunity is one that you can physically feel good about.

  Over time, observe the patterns of physical sensations in your body when faced with different daily decisions. For example, when I’m feeling stressed or anxious about a decision, I feel a physical sensation in my upper arms, as if cold water is rushing through my veins or under my skin. When a situation is good or I receive positive information about something, I get tingles down the back of neck and across my upper back. Take your increased awareness of your own body’s patterns in daily situations and apply it to investment decision-making situations to help you determine whether an opportunity is favorable for you or not.

  When faced with a decision that requires risk taking, adopt a power pose, as suggested by Amy Cuddy. Power poses have the effect of temporarily increasing testosterone levels in your body, preparing you for greater risk taking, if that is what you want to do.

  Using Intuition to Make Decisions in the Face of Investment Uncertainty

  We need intuition for those big leaps of faith that investing sometimes requires. Intuition is difficult to put a finger on. It is often something that neither emotions nor logic can explain. In fact, it typically flies in the face of rational thinking. Intuition, when we tap into it, supports our decision to proceed when we might otherwise be fearful and even when the odds are stacked against us. Intuition helps us access our deeper knowledge, which is otherwise buried under over-calculation and overanalysis. Intuition is the warning feeling we get when something is presented to us and, although it looks and feels pleasant, deep down we know or sense it is not.

  Intuition guides you in a particular direction and is critical for making decisions about the unknown, uncertain future. Trend analysis, pattern recognition, extrapolation, and other predictive models use past data to predict an investment’s future outcomes, but we have to qualify these predictions with the caution that past performance is not an infallible predictor of future investment results. There is no such thing as a future fact.

  Analysis as an information input into our investment decision making about the future is limited because you cannot analyze something that has not yet happened. Even emotions are biased by past experiences. How do you feel something that hasn’t happened yet? Instinct is about survival and avoiding known dangers. Instinct is physiological, and our physiology adapts to dangers we have experienced. But that also relies on past experience.

  Analysis and emotion help narrow the field in our due diligence and rule out alternatives. Instincts keep us alive and safe from danger. But for complex decisions about the uncertain future where other unknown factors could affect outcomes, like investments, we need some other input to guide our decisions—and that information comes from intuition.

  Intuition is the only forward-looking input. It allows us to fill in gaps in information about future personal responses to outcomes. It is particularly useful in choosing partners, places to live, and anything relationship-oriented, whether with ourselves or others. Intuition helps mediate between competing goals and desires and enables us to make a choice that optimizes our decision.

  Humans have a tendency to make intuitive and subjective matters analytical. We are obsessed with measurement and comparison. Why not trust intuition?

  While there is research supporting the idea that emotions play a big role in decision making, discernment, and judgment, intuition is a less studied input. Perhaps there is something in the brain that enables us to suspend disbelief, ignore emotions that might impede us (like fear), or ignore immediate gratification in lieu of long-term benefit. The challenge with conducting research on intuition is that most people don’t know to test for it until long after the intuitive decision has been made and hindsight tells them it was good. I (intuitively) know it exists, because how else do we imagine the unimaginable? How else do we create things that have not been done before? Why believe the Earth is round when everyone else “knows” it is flat? Intuition guides us to explore these things further.

  Actively Engaging Intuition in Investment Decision Making

  Successful investors will credit their intuition, although they will not spend a lot of time talking about it. This is because intuition does not originate from our rational and logical brain, which makes it hard to explain it. But we all have the ability to access our intuition and consciously engage it in our investment decision-making processes.

  I have trusted my intuition in making decisions about my career path, my partner, relocation, and who to work with. Analysis about a situation helps me make an objective assessment, emotions draw me to what I know or away from what I fear, and intuition leads me toward the grand opportuniti
es I do not yet have any evidence of. How could I possibly have known all there is to know about a career path in investment banking before entering that industry? How could I have known about my husband before we married, or about London or Vancouver before I relocated halfway around the world?

  I apply integrated decision making to many areas of my life, but particularly to investing, because it is inherently a future-oriented activity. How can I know all there is to know about the entrepreneurs and ventures I’m considering investing in? I can analyze the opportunity and the entrepreneurs and be aware of how I feel about them, but it’s my intuition that fills in the gaps and guides me toward the future outcomes I seek.

  Try it out for yourself. Look back on a big, life-changing decision you made that involved your relationship with yourself or others and reflect on what drove your decision. Did it require a lot of analysis? Did your emotions guide you? Was your survival instinct involved? Or was it something else? How did you respond to the outcome of that decision? Did the numbers stack up afterward? Did you feel elated or disappointed?

  Now try this exercise in relation to a current decision you face. Start by clearing your mind. Meditation or a walk through a natural environment helps. Reflect on what your analytical brain is thinking, what your emotions are sensing, and what your body is feeling, and then ask what your intuition tells you. Your decisions will be optimized when all four of these things are in sync. We can make decisions when all four are not in sync, but if you are aware of which of them is leading the decision—be it analysis, emotion, body, or intuition—you are less likely to be surprised by the outcome.

  The biggest challenge we face at the moment are the outcomes resulting from decisions that were over-weighted by analysis. These outcomes make sense analytically (aka, the numbers stack up), but there is something dissatisfying and not sufficiently nurturing about them. This is the problem in business, and in the investment sector in particular. Investment decisions are too analytical. They do not encompass enough emotion or intuition. The solution is not a bifurcation of investments into “conventional” investments and impact or socially responsible investing; what we actually need is integrated investing—an integration of information from analysis, emotion, body, and intuition into our investment decisions. That integration will lead to outcomes that satisfy our analytical, emotional, physical, and intuitive needs and enable economic viability, prosperity, and the thriving lives and communities we all seek.