“Mental obstacles to profit” — a hidden mechanism behind why mindset interferes with earnings, published as a column on Toyo Keizai ONLINE

Hello, this is Matsushima.

I meet individual investors,

and when I ask why they are losing,

one of the answers that always comes back is,

“I can’t control my mind and emotions.”

Similarly, one of the ultimate propositions in investing is,

“Is mental state more important, or are skills more important?”

Because people are creatures of emotion, all actions are triggered by emotion.

In that sense, without mental or emotional control,

it is impossible to continue to make profits in investment.

If you study how the brain works,

you can understand this more concretely.

We think of emotions as vague,

but they are simply stimuli or commands from the brain.

The movement of emotions and the mind is

controlled by the brain’s responses and functions.

Now, in investing, mental and emotional

control is necessary because there is always a time of loss = pain involved.

When people face pain,

they have a tendency to reflexively try to avoid it.

Here the brain intervenes and issues the directive,

“Leave that pain immediately.”

Thus, your emotions and mind

are unsettled.

However, across a long history of investing (though it’s probably only 200–300 years),

this sequence of reflexive emotional reactions

clearly does not lead to profits.

This is a paradox in psychology,

the principle that “beyond pain there is pleasure.”

In investing, you need to understand and process phenomena more rationally and theoretically

to a certain extent, and to properly

overcome pain.

One example is “risk management through stop-loss,”

stop-loss is painful, but it guards against the catastrophic damage that can follow,

and there is pleasure in that protection.

However, investors who do not understand this enough

tend to逃げようとして、

they try to escape the pain of the moment—loss—and

never reach the time when the benefits lie ahead.

To make profits in investing,

and to continue investing,

you need to manage your emotions and mind well.

And to become able to manage your emotions and mind well,

keeping an investment diary for about a year is the most effective method and action.

An investment diary is not just about writing;

you should write your daily feelings and moods there,

and later reflect on them, confronting your emotions,

which gradually trains you to control your emotions and mind.

Because our brain’s workings are involved there,

emotional and mental control cannot be achieved overnight.

Please think of it as a little training. (laugh)

Controlling your emotions and mind means

facing your own emotions daily.

When profits swell, you become excited and heated,

when you are losing, you become depressed and discouraged.

Accepting that lift and fall, hope and despair,

and excitement and disappointment—that is mental control.

Becoming slightly desensitized in a good way,

and being able to stay optimistic is a win. (laugh)

If you want to continue investing and

to keep making profits,

please get along with your emotions and mind well.

The first step starts with an investment diary.

The investment diary I wrote and supervised can be purchased from here.

Please start today.