How Emotional Intelligence Can Increase Your Profitability As An Investor

If I asked you to think of ways to be more successful as an investor, you’d probably suggest studying the markets in greater depth or gaining more experience. Maybe looking for a mentor or trying out a new strategy. 

But what about increasing your emotional intelligence?

As anyone who’s ever made a rash move in the heat of the moment and looked back in horror will know, our psychology can have a huge impact on how we make decisions under pressure. This is especially true of trading.

Let’s take a deep dive into emotional intelligence and how mastery can increase our profitability when trading.

What is Emotional Intelligence?

Emotional intelligence (EQ) is a term thrown around a lot, but I’m going to use a tighter definition. 

In everyday life, we say “emotional intelligence” to describe our ability to read other people and respond appropriately. We think of it as a soft skill for job interviews and a tool to keep everyone happy in group situations.

Actually, it’s a lot more complex than that. There are differing theories about EQ, especially regarding how we can measure and develop it. But most researchers agree EQ is about more than just handling social situations — it also encompasses our ability to understand and control our own emotions. 

What could be more vital to investing?

Emotional Intelligence for Investors

One of the most prominent psychologists to study emotional intelligence, Peter Salovey, explored the link between emotional intelligence and investor behavior. His research for the CFA Institute with a behavioral economist and Vanguard principal gave a different interpretation to what most people think of as EQ. 

The paper defines emotional intelligence as someone’s effectiveness at recognizing and regulating emotions while solving problems. It’s something we can easily apply to trading.

An investor must solve a problem every time they make a decision about buying, selling, or holding their assets. Those with low emotional intelligence follow their impulses without even realizing it, whereas high-EQ individuals are able to take a step back.

Investors with high emotional intelligence are hyper-aware of their instincts and don’t trust them immediately. They might still panic if a stock they bought plummets in value — but instead of giving in to their inclination to sell, they calm themselves down and assess the situation rationally.

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