Emotional Investing vs. Logical Decision-Making


It’s crucial to consider a long-term perspective and consult with financial advisors for guidance, especially in times of market uncertainty. Many investors follow the herd mentality and are susceptible to making spontaneous investment decisions based on emotion.

Today’s episode of Retire in Texas aims to break this herd mentality and dives deep into the intricacies of market sentiment, financial planning, and investment strategies you should be considering during market uncertainty.

Some of the topics discussed include: 

  • Why market sentiment is currently pessimistic, with various indicators pointing to bearish signals, and how a major cause of this is that many investors tend to follow the herd mentality.
  • A breakdown of the ongoing economic transition and the uncertainty it creates.
  • Emphasizing the potential benefits of bonds as an investment option, especially for retirees or those seeking alternatives to stocks.
  • Why you need to avoid making knee-jerk emotional decisions and to consult with financial advisors for thoughtful, logical investment strategies.

If you enjoyed today’s episode, make sure to share it with your friends and family!


Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. Thanks for listening. To Retire in Texas. This information is general in nature only. It’s not intended to provide specific tax, investment, or legal advice. Visit PAXFinancialGroup.com for more information. For those that aren’t clients of PAX Financial Group, you can go to our website. You can click on a button that says Contact Me and you can schedule a 15-minute consultation with one of our advisors there, we have ten advisors.

Right now. Probably have a few more next year, but there’s a few that have capacity. Some of them are there. We have a certain amount of slots for each advisor and so some of them are at capacity. But go on that website, click contact us and we’ll schedule a 15-minute consultation and see if we’re a good fit.

And if you don’t want to do that yet, there’s plenty of ebooks on the website too, so you can just learn more about financial planning and money and investing. So, there’s some good resources there and I think our onboarding process is pretty non-threatening. So thank you to PAX Financial Group for allowing me to be able to facilitate this conversation with you because I really want to guide you throughout these marketplaces.

We’re in just a lot of noise right now political scandals, accusations, abuse of power, war in Israel, inflation, the government debt, another debt ceiling debate, immigration mess. I mean, this is just overwhelming. And you could feel it in your shoulders. But, you know, everyone says there’s nothing to worry about, nothing to see here, folks. But we all know that there’s just a lot of mess.

So how do we handle this? The data is actually interesting. We’re seeing a lot of pessimism in the marketplace. Bank of America does an index that says, okay, your analyst, research analysts, people that really know the marketplace, are they optimistic or pessimistic? And right now, there’s what we would consider bearish signals, which is a sign of pessimism.

U.S. investor sentiment is down. The small business index is trickling down. So, these are all like independent surveys and they’re all moving towards a pessimistic environment. The irony of this all, if you’re an investor in the market, the irony is that many times that’s kind of the time to be thinking about investing when everyone else is worried.

There’s the old saying be greedy when others are fearful and be fearful when others are greedy. I’m typically a contrarian in my thinking. Generally, when the herd is going a certain way, I just start to ask a lot of questions and the market has always been in such a way over the years that human behavior really defines the market.

So, when everyone’s really fearful, it’s not uncommon that the market will rebound from that, I guess you might call it the peak of pessimism or the valley of despair, whatever you want to call it. Now, that doesn’t discount the nervousness that we all feel. But, you know, we’ve had clients before and I’ll just make up one client, make up his name.

I’ll say it’s Gilbert. Gilbert has his money here. Everything’s fine. He’s really happy when the market’s going up. But when things get bad, he gets really nervous. And Gilbert was a good client. He doesn’t really just he doesn’t make a lot of noise. He’s very respectful, good, asking good questions, and engaged and all that, a really good relationship. But when Gilbert calls and says, “I’ve had enough, pull me out, that’s what it looks like.

That’s when the market goes up. So, the joke for a little while was, Hey, has Gilbert called yet? Because the market’s going to rebound as soon as he calls. And that’s not uncommon. I mean, it is absolutely not uncommon for somebody just to hit their wit’s end, make a course correction, and then all of a sudden, it’s like, why did I do that?

That was the worst timing. And, you know, that happens on the other end, too. So, if people are starting, like I get this feeling when people are starting to trade stocks a lot in the market, like when you have a booming market, when the stocks are going up 20, 25%, everyone’s making money, everyone’s happy. And I’m starting to get a lot of these little peripheral conversations about people trading stocks that should not be trading stocks, not only intellectually may not have the bandwidth, the information to make good decisions, but did not, nor do they have the emotional fortitude, nor do they have the time.

But they’re doing it. And when they’re doing these trades and I’m seeing people do it, that really shouldn’t be doing it. I’m like, okay, this is irrational exuberance. This might be the time to be fearful when apparently everyone else is greedy. And I think we’re at the reverse of that right now. Or maybe it’s time to be greedy when everyone is fearful.

Now I use greedy tongue in cheek, right? Like, I’m not saying greedy. I’m just using that as a word to identify a contrarian approach when the herd is all behaving a certain way. But there’s logic to this. It’s not just like a heuristic or rule of thumb. There’s logic behind the thinking of, don’t follow the herd mentality. Because what happens when people are really, really fearful, they start to unwind their investments, they start to sell, right?

This is I mean; this happens. People are nervous. Like I said, U.S. debt or inflation or the war. They are just nervous and nervous because not as they’re really nervous and not what’s happening today. Let me make that clear. They’re nervous about the uncertainty of tomorrow. So, they’re not nervous about today. They’re nervous about the uncertainty tomorrow.

And that’s everything that I mentioned. You know, whether it’s a war or immigration crisis, you can say, well, today’s fine. Yeah, employment’s great and businesses are making money. I’m not worried about today. I’m worried about tomorrow. And then because of that worry about tomorrow, people and institutions pull out. When they do that, the prices of these companies go down in value, they become less attractive.

So, you know, let’s use a company called Stryker. I’m not suggesting this company to own. It’s an exam tool, but it, let’s say, trades for $270 a share, kind of an expensive stock. I mean, just the way the pricing is structured, expensive can be taken a lot of different ways. But it’s just 270 bucks. So, suppose everyone gets really, really scared about what might happen in the future and then the stock drops to like 100 bucks.

Well, if you’re a smart investor, then you go to Stryker and you say, hey, Stryker, are you about to collapse as a company? And Stryker CEO’s like, hey, no, we’ve got cash in the bank and we’re still selling products. And you scratch your head, you go, how are you selling products that everyone believes the world is going to collapse?

They would say something like, well, 10,000 people are turning 65 every day. We do hip replacements and that’s not going away any time soon. And then you go, that actually makes sense. And now I can buy it at $100 a share. Then you’ve got these people. This is just a microcosm of how people behave when they don’t follow the herd.

And then money starts flowing back into the stocks because they’re good companies that are going to be around a long time and that turns the market around. But we have to hit an inflection point where the bargain shoppers come into the market and the herd is kind of leaving. There’s this kind of a little inflection point in the market.

We just don’t know what will happen. We just don’t know where that bottom exists. Of course, if we knew the bottom, we would just kind of time this thing. But there’s a certain element where the herd is starting to pull their money out and then the bargain shoppers come into these large institutions and people and they’re like, man, I can buy that stock at like half the price it was two years ago.

And then they just go shopping for Costco or Procter Gamble or Nestlé because they identify these companies are not going to go bankrupt. And they’re thinking, well, they’re going to be around for a long time. People are still needing hip replacements or, you know, from Nestlé dark chocolates, whatever it is. So that’s how the market works. Now, the problem is that the system itself is built pretty well.

I’ve really studied this stuff forever, and I’m so impressed by the innovation of the markets. It is absolutely fascinating. I mean, it is as fascinating as electricity. I’m just telling you, there are systems involved and it’s not perfect. But because we’re all busy with our lives and we don’t know what companies to buy, we hire people that are analysts or mutual fund managers, financial advisors.

We hire professionals who can know which ones to buy. So, we don’t have to worry about that while we’re, you know, raising our kids or running a business. And so, as advisors at PAX, we’re very comfortable weathering the market volatility because we know that the various managers that we use because we’re independent, so we get to choose the managers.

We’re not like a big bank where we were forced to use managers, we just use managers. And if they’re not doing their job, we fire them and bring in another one. But they give us insight like, hey, this company is on sale and we’re going to go bargain shopping for your clients. Now there’s various different strategies, but just so you know, this is how the market works.

The herd gets really scared. Oh no. Political scandals, war in Israel, inflation market starts to go down and bargain shoppers come in, driving it back up. If you are one too kind of freak out in this little cycle, you’re going to lose money. I mean, you’re just going to get run over because you join that herd and then you sell and you’re like, get me out of here.

That happens so often. That’s why that whole phrase you buy. I think Warren Buffett might have repeated this, but he’s always known for saying that you buy when there’s blood on the streets, you buy when there’s blood on the streets, especially if it’s yours. Now, is there blood in this market? Like is this market crashing? No. the the real challenges is that the majority of any returns that have come as of lately have been in just a few stocks, maybe 7 to 10 stocks, and the majority of the stocks have gone down, the majority, if you look at stock market represented by maybe the S&P 500 or whatever, the majority of companies have gone down in value. And so, we’re in a time where we’re transitioning. And this is very important. I want to make sure this is clear that we are transitioning our economy, and this transition is creating uncertainty and that uncertainty is causing stocks to fall. Remember, uncertainty is really what causes stocks to fall.

So whenever you have changed, you have had a transition, you create uncertainty. And so, we’ve got this cloud of uncertainty hanging over our economy with the reason this is all this is hopefully all going to make sense. The reason we’re transitioning is because we have to pay the price for the medicine that we took when the markets crashed in 2008 because of the banking crisis and the pandemic. The stuff that we did is as a country, we have to unwind that stuff.

It was called quantitative easing. It was called reducing interest rates to negative. It was all this stuff that we had to do that we were on life support as a country. We have to unwind it and to unwind it. It’s actually a tricky thing to do. And so far, the Fed’s done a pretty reasonable job, as is. You know, from my vantage point, the jury’s still out.

But the Federal Reserve had to raise rates and we had to do a bunch of things. But this transition is just a tricky one. And so, a lot of that uncertainty is rooted in the uncertainties, is the unknown of what the future looks like. But so far, so good. You would think when interest rates go up as fast as they have gone up, you would think that unemployment would go up and people would be looking for jobs and that’s just not the case.

Now that may change in the future, but right now unemployment’s really good. Businesses are still functioning. I mean, if you’ve been to Costco lately, they’re still functioning movie theaters, people are still going to see Barbie and Taylor Swift and all that stuff. So, the economy is still functioning despite the fact that the Fed had to raise interest rates to get us back to a level playing field because of the mess that we had in the last several years.

But the cool thing about this kind of describing this, this kind of negative sentiment, the best thing I like is that if you owe money, that’s a problem. And I can talk about that later. But if you are a lender, you’re like, this is a good time. And how do you become a lender that’s called owning bonds?

A bond is a loan. So, if you’re a lender, you love this economy. Interest rates are higher. I can earn a better coupon. I can earn better interest on my money. I want to be a lender. And so that has its own challenges. But what is actually as I was just in Philadelphia, just not long ago at a conference with all these financial nerds, and we were fascinated about how this bond market will help retirees in this next chapter.

So, if you’re somebody who says, man, I’m just really nervous about stocks, or maybe you have money on the sidelines and you just don’t want to put it in the stock market because you keep thinking like with air quotes, stop. Stocks are scary. Well, it is about time that we all look at these bonds and just understand a bond is a loan alone that you make to a company.

So, the company has to be able to pay that bond back. But if they’re making, if you’re lending money to a company that’s making hip replacements, they’re probably going to be around for a while or a Costco or big good companies. So, they’re paying anywhere between 3 and 10%, depending on the type of bond. This is good money that we never were able to capture in the last decade.

So for where I sit as somebody who is trying to help people beat inflation and not run out of money, having a new tool in our tool belt with higher interest rates from bonds is absolutely fascinating. And so we’ve really spent the last 12 months really building out new assets managers that could help our clients navigate this bond market.

And I feel really good about the managers that we have in place and the strategies that we have in place to to lean into this bond market. There was a time that we called it TINA time. It’s called There is no Alternative to stocks because cash was paying zero and that game is over. There is an alternative and it’s the bond market.

There’s a couple other alternatives too, but that’s another story. The main thing is that there are silver linings in this transitory economy that has us all nervous. I want you to be careful of not following the herd. I want to make sure that you’re careful of not making knee jerk emotional decisions. I think check in with your advisor and just make modifications, looking at that bond market.

See if it makes sense for you. Those are wise decisions. So man, I feel like I just didn’t take a breath this whole time, but I am certainly enthusiastic about this next chapter and I appreciate you guys just being cerebral, thoughtful, using logic, deductive reasoning and not emotional when it comes to making financial decisions. And remember, you think different when you think long term.

Have a great day.


CIO Update Slides – Eventide – Eventide (eventideinvestments.com)


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