Integrating Analysis, Emotion, Body, and Intuition into Investment Decisions
Before making an investment decision, ask yourself the following questions:
What do I think I should do?
What do I want to do?
What signals is my body giving me?
What would I intuitively do?
The first question engages your analytical brain, and your response is based on the analysis you’ve performed. The second is about your emotions and the direction they are guiding you in. The third asks you to pay attention to the state of your body and the physical sensations you might be experiencing. The fourth taps into your intuition. To best answer this question calling upon your intuition, I highly recommend you do whatever practice you’ve found helps you engage your intuition, be it meditation, going for a walk, relaxing, or even just closing your eyes.
These four questions are good to keep in mind and to practice if you face the opportunity to do some integrated investment decision making—that is, integrating analysis, emotion, body, and intuition into your investment decision making. Optimal investment decisions result when you have done your analysis and due diligence, when you are aware of your emotional reaction and pay attention to how emotions are guiding your decisions, when you are aware of the physical signals your body is giving you, and when you are aware of your intuition and how it guides your decisions in the face of uncertainty.
This approach is an important cornerstone for you on your journey toward integrated investing.
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1 “Antonio Damasio: This Time With Feeling,” Aspen Ideas Festival 2009, July 4, 2009, accessed April 8, 2016, http://library.fora.tv/2009/07/04/Antonio_Damasio_This_Time_With_Feeling .
2 Allison Barnes and Paul Thagard, “Emotional Decisions” (University of Waterloo, 1996), accessed April 8, 2016, http://cogsci.uwaterloo.ca/Articles/Pages/Emot.Decis.html .
3 Antonio Damasio, Descartes’ Error: Emotion, Reason, and the Human Brain (Penguin Books, 2005), 10.
4 Damasio, Descartes’ Error , xvii.
5 The Brain from Top to Bottom, accessed April 8, 2016, www.thebrain.mcgill.ca/flash/capsules/experience_bleu04.html .
6 The Brain from Top to Bottom.
7 Satya Patel, “Chemistry and emotional resonance are key to co-investor relationships too,” Venture Generated Content, November 6, 2013, accessed April 8, 2016, https://venturegeneratedcontent.com/2013/11/06/chemistry-and-emotional-resonance-are-key-to-co-investor-relationships-too/ .
6
MINDSETS
I FIRST NOTICED THE importance of mindsets in investing shortly after I transitioned from investment banking to impact investing, and I began to think of investments as relationships rather than as transactions. This could have been in part because my transition involved shifting from working with faceless investment products to working directly with entrepreneurs trying to make a positive difference in the world with their ventures. My relationship lens—or relationship mindset—fit with the fact that I was working closely with people again, which reminded me that investing activities, at the end of the day, are all about people. Even the investment products of my banking days were about people (somewhere at the other end of a long, opaque transaction line), but that industry seemed to have forgotten about that and had distanced itself from the people it was affecting. This difference has been one of the most noticeable contrasts between my work as an investment banker in the mid-2000s and my work in the impact investing industry, where I am now. Whereas banking activities were depersonalized and data-driven, in impact investing we pay far greater attention to the people involved and the impact our actions have on people, both directly and indirectly.
At the start of 2013, I began to notice how the outcomes of my decisions varied depending on what mindset I was in at the time. Sometimes I was too much in a mindset of serving others and not focused enough on exchange. In one situation, I didn’t get what I needed out of a business relationship, paid more money than I could afford at the time, and focused too much on helping her as opposed to an arrangement where we both could get what we needed. When I experience a dip in cash flow, revenues, or investment returns, or if an entrepreneur conveys poorer-than-expected results in their business, the impulse is for a scarcity mindset to creep in, which makes decision making focus on the short-term. I have become aware of how an exchange and abundance mindset can help me make decisions that are more beneficial to me and to people I do business with. As a result of these experiences and self-reflection, I now make an effort to be cognizant of what mindset I’m in before making a major financial decision.
After reflecting on different decision-making experiences, I made note of the mindsets I was in at the time and came up with the six most critical mindset groups for me. The way you frame a situation and the way you look at the world can strongly influence your decisions. Mindsets are like a muscle you need to train and flex. They are not static. You need to practice to maintain the mindsets that are most conducive to confident and positive investment decision making.
In this chapter, I will discuss the six mindset groups I feel are most important. I’ve divided them into three categories.
Mindsets that affect your perception about resources and risk: Abundance and scarcity
Curiosity and fear
Mindsets that influence how you relate to and interact with others: Exchange, self-interest, and serving others
Relationship and transaction
Mindsets that affect your frame of mind about results: Future potential and past performance
Resources and money
Abundance and Scarcity
Have you ever noticed how your decision-making style changes when you’re thinking on an empty stomach versus when you’ve just had a satisfying meal? When you’re hungry, not only does your physiological drive to search for food influence your decisions and direction, it can also conjure a sense of scarcity. Feeling satiated, in contrast, gives a sense of abundance—at least in the short term—while you relish the meal you just had.
The abundance and scarcity mindsets reflect these feelings. They are perspectives about resources, things, feelings, or states of being that you have or that you want to be present in your life.
An abundance mindset goes beyond the physical and the physiological. It is a perception. It is how your brain thinks about what you are full of or what is present in your life. It is the thought that you have and will have all the resources, financial and non-financial, that you need. With an abundance mindset, you approach investing with the feeling that you are abundant in the time, money, experience, and expertise required to make a deal.
An abundance mindset in investing is associated with a feeling of creating more of something as a result of your investment decision—more resources, more investing experience, and more impact. This mindset means you can serve your own self-interest and serve others simultaneously.
Abundance Mindset Scarcity Mindset
Expect high performance and high impact Expect failure
Investment with a return and impact Hoard assets
There is more where that came from This is all that I have, that I’ll ever have
Build trust Lack trust
I have enough to meet my needs and can invest in others There isn’t enough to be shared
Prioritize resources to enable investment Not enough resources to invest
A scarcity mindset is the perspective that there are not enough resources to go around. It breeds the attitude that “if I invest this and lose it, there’s no more where it came from.” Scarcity breeds feelings and attitudes of risk aversion.
In the context of investing, an abundance mindset can mean anything from literally feeling abundant enough in money that you can make an investment (you have enough money that you can allocate some of it toward investing in impactful ventures), or it can mean feeling abundant enough in time and energy that you’re willing to evaluate new opportunities and advise entrepreneurs th
at you have invested in. You may need to feel abundant in other things, such as ideas, creativity, or knowledge, to feel there are no barriers to you making an investment.
When I am in a scarcity mindset, in particular regarding money, I am more reluctant to invest. I scrutinize opportunities more closely, and I demand more from my investments. If I’m in a scarcity mindset about time, I won’t spend the time that is needed to properly evaluate an entrepreneur and a venture, nor will I spend the time needed to carry out due diligence. If I feel I don’t have enough time to do the due diligence, I won’t invest.
With an abundance mindset, if an investment doesn’t turn out the way I expected—or worse yet, if it fails—I still know I have gained something from the experience, and that the investment will open a door or prepare me for another opportunity around the corner.
An abundance mindset in the entrepreneurs I invest in means they’re looking for business opportunities where abundance lies. A scarcity mindset could mean they operate their ventures in a miserly way that stifles growth and opportunity. Worse yet, they may believe there are not enough resources to go around, possibly leading to staff or suppliers being underpaid to maintain margins and profit. A scarcity mindset can lead to poor decision making and situations of inequity.
How to Develop an Abundance Mindset
To develop an abundance mindset, begin with the belief that there are more than enough resources to go around. Develop a mindfulness practice that enables you to embrace and embody this belief. A mindfulness practice might include meditation or self-affirmation on the concept of abundant resources.
To get grounded in an abundance mindset, think about past situations when you have experienced or had a feeling of abundance. What did those situations look and feel like? What were their characteristics? Imagine yourself in those situations to bring yourself back into an abundance mindset.
Curiosity and Fear
My mindset about unknown and uncertain situations is rooted in curiosity. I am also the sort of person to be curious about what lies around the corner.
In 2012, a young woman at a networking event I attended, who was just beginning her career, shared with me her desire to move abroad. Although something was clearly driving her to explore traveling and working in a different culture and environment, she was also a bit scared of the change that would mean. I mentioned to her that I had lived in the UK for twelve years and made a few moves in my career amidst uncertainty, but fear had never held me back. The young woman asked me what had enabled me to make the move without fear, and I told her that my curiosity about different cities, new roles, and meeting new people had excited and energized me in instances where the environment, situation, or outcomes were unknown. She was inspired by my story and promised to keep it in mind when making her decision.
After that conversation, I realized that I apply that same curiosity to investing. I am genuinely curious about what an investment from Pique Fund or me personally can do to support an emerging leader and business. What lies around the corner if I give this entrepreneur and venture a chance?
The curiosity and fear mindsets are perspectives on risk and how to approach uncertainty and the unknown.
Curiosity is defined as a strong desire to know or learn something. A curiosity mindset prompts inquiry, inquisitiveness, and learning. It can help propel you forward in the face of uncertainty.
In investing, be curious about an entrepreneur and their venture. Adopt a curiosity mindset and be inquisitive about what the entrepreneur and their team can accomplish. Be curious about how a venture’s product or service can address a problem. Be curious about how an investment opportunity and decision might turn out.
A curiosity mindset encourages you to learn and find out more through the experience of investing in an opportunity and letting the uncertain future unfold in front of you.
A fear mindset, on the other hand, can keep you from moving forward. Fear encourages the status quo and avoids change. Being fearful about investing in a venture keeps you from taking a step forward to learn more about the opportunity. Rather than inspiring you to ask questions or seek help, a fear mindset blocks off the opportunity.
Curiosity Mindset Fear Mindset
What if ? That’s okay
Embraces change Maintains status quo
Desire to explore and discover Preference for staying where you are
Develops a hypothesis and tests it Requires someone else to have proven it
Aware of intuition, follows intuition Dependent solely upon analysis and reason
To develop a curiosity mindset, focus on asking questions rather than knowing the answers. Be inquisitive.
Imagine yourself as someone that personifies curiosity, like explorers, adventure travelers, detectives, and astronauts. Imagine investing as an expedition you’re leading, or that the opportunity you’re considering is like a city you’re about to discover. Do detective work on the entrepreneur and venture not knowing how the case will unfold. Imagine investing in a venture as exploring space and new frontiers.
Children are also great role models for curiosity. Try looking at your investment opportunities through the eyes of a child experiencing their surroundings for the first time. Children are naturally curious, with hardly any bounds.
Keep an open mind and remove any limitations you may be placing on your investment decisions. An open mind is a curious mind.
Self-Interest, Serving Others, and Exchange
Capitalism is rooted in the idea that serving self-interest is the biggest, most effective economic motivator in society. Big business has been built on Keynesian economic principles that worship the motivational power of self-interest.
When I started focusing on impact investing in 2010, a lot of my colleagues in the social enterprise and not-for-profit sectors told me how the focus and mission of their business activities should be about serving others—about being “others-interested.” Debates ensued about how people are inherently selfish, even when performing seemingly selfless acts for others. We feel good about helping other people, and that got me thinking. Where we focus our interest is not binary. It is not a mutually exclusive competition between serving self or serving others; the focus is inclusive. In my own experience, the feeling of a fair exchange is what truly leaves me feeling that I met my own self-interest and served others while doing so.
A self-interest mindset places your own needs ahead of anyone else’s. If self-interest is the top thing on your mind when you’re faced with a number of investment choices, you’ll make decisions that serve you and your interests first. In investing, this means concentrating on “What’s in it for me?” However, too much of a focus on yourself will make it challenging to part with your money, your time, and your energy. Investing inherently involves other people, in particular the entrepreneurs at the helm of the ventures you’re investing in. So the self-interest mindset must also be balanced with other mindsets.
A serving others mindset influences you to make decisions that put others’ needs ahead of your own. It is a mindset of generosity and giving to others. With it, you might find yourself compromising or even sacrificing the satisfaction of your own needs and interests in order to meet the needs of others, which can leave you drained of your financial resources and feeling mentally exhausted as well. So the mindset of serving others must be balanced with self-interest.
The balance between self-interest and serving others is what I call an exchange mindset. With it, you’re going to choose the investment opportunity where there is the best exchange of value. That is, you gain from what the opportunity can give you (financial benefit, kudos, experience, connections to others in the venture’s network), and the venture gains from what you are giving (financial resources, expertise, advice, and connections).
Exchange Mindset Self-Interest Mindset Serving Others Mindset
Us and them, together Me Them
Give and take Take Them
Community Selfish Selfless
&
nbsp; Collaborative Competitive Charitable
Fair Greed Sacrifice
The Ultimatum Game
In the Ultimatum Game, invented by German sociologist Werner Güth in the early 1980s, you receive a fixed amount of money, say, ten dollars, to share with a stranger according to some rules. You must offer the stranger a proportion of the money. If the stranger accepts your offer, you and the stranger leave the game with the agreed amounts. If the stranger rejects your offer, you get the ten dollars back and you both leave with nothing. The roles can be reversed. If you were offered ten dollars from a stranger under the same rules, which offers would you accept and or reject? Researchers have studied the outcomes of this game over the past thirty years, and offers are typically at least 30%, with the most common offer by proposers being 50%. Responders usually reject anything less than 30%. In his book Basic Instincts: Human Nature and the New Economics , Pete Lunn believes the explanation for this behavior is that our instincts associated with fairness are stronger and outweigh our selfish emotions for money.1
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