When It Comes to Investing, EQ Matters More Than IQ

Joel Litman

While many investors were visiting Omaha, I went whitewater rafting in North Carolina...

Last week was many investors' annual pilgrimage to Omaha, Nebraska that culminated in Warren Buffett and Charlie Munger, two of the greatest investors in history, conducting Berkshire Hathaway's (BRK-B) annual shareholders meeting.

Meanwhile, I was on an executive retreat in North Carolina. I enjoyed some whitewater rafting with fellow academics, business partners, and clients.

We rafted on the French Broad River in North Carolina, which flows into Tennessee and joins the Holston River to become the Tennessee River. These were class III and IV rapids, which aren't too difficult if you have a good raft guide, which we did.

At Buffett's event, he spoke about navigating tumultuous waters as well, though his comments referred to the markets, of course. And, as always, his guidance was sage.

To wit, Buffett said, "We didn't know what was going to happen with the pandemic. We didn't know what was going to happen with the economy. And everybody thought they'd gotten all kinds of surprises since."

When investing, people get into big trouble with their portfolios... not because of the problems in their environment, but because they lack emotional control in navigating that environment.

All the panic selling going on right now is a perfect example of this.

Meanwhile, with every client, every student, and every investor we speak to... we continue to guide people to stay the course.

Emotional intelligence is paramount right now. The fact is, the panic selling is unjustified, market fundamentals are incredibly strong, and the mainstream financial media is selling sensationalism instead of providing good guidance.

On his calls, Buffett talks about navigating the stock market with temperance over IQ...

Buffett and Munger talk about emotional intelligence ("EQ") being more important than IQ in investing.

Back at my North Carolina retreat, after the outdoor adventuring, I did a presentation I called "Stock Markets and Crises 2022."

In that presentation, I systematically covered our research that shows all the bad news out there are short-term upsets, not permanent weakness in the market. The panic mongers are basking in attention, while so many investors are making bad decisions and leaving – or avoiding – U.S. equities.

If we react in fear to every market surprise or headline in the ad-driven financial media, we will be bad investors.

Our subscribers who receive our Timetable Investor analysis know full well how we dissect each of the reasons for the panic sell-off and show just how much these theories don't hold water.

The fact is, any money you won't be spending for at least the next five to 10 years ought to be in U.S. equities, where it is bound to outperform every other asset class. It's as sure as water flowing downhill.

There have been many skittish investors selling U.S. equities, concerned about funds they will need to spend in the next two years. Well, any money you need within two years should never have been in the stock market anyway. That's just bad asset allocation.

Inside Altimetry, work environments need EQ too...

For anyone who hasn't gone whitewater rafting, there's a lot more teamwork involved than the videos or pictures may suggest. There is quite a bit of skill required for navigating the rapids, guidance and teamwork in rowing, and managing the raft down the rapids.

A good guide and good teams stay calm and focused even when it looks like the water could flip the raft. Staying calm is a prerequisite for staying focused. One cannot be panicked and intelligent. It's biologically impossible to be in a fight or flight state of mind and still be fully rational and logical. Cognitive abilities collapse when people panic.

Internally, if we react negatively to every vicissitude and every up and down in the workplace for that matter, we will end up with bad work environments, and individually, we will each get less out of our careers.

EQ is about first controlling your own negative emotions, then calling up your positive emotions to accomplish what you want.

The next level of an individual's EQ is helping others lift their emotions. That first includes learning techniques to help others stay calm when they panic. Later, it includes helping people call up their positive emotions to become motivated.

Long-time readers know that I don't believe in the term "work-life balance." Are we to believe that we die when we begin working and come back to life when we complete our workday? The idea that work and life are separate lives has contributed to many people getting stuck doing the wrong things day to day and making bad choices strategically.

Work is a part of life. So, we believe in a balance of work and non-work, both of which contribute amazingly to life.

So we trust that learning EQ to be a better investor and learning EQ in your workplace will contribute greatly to learning EQ in your daily life.

As always, I wish you love, joy, and peace in your investing, your work, your home, and your greater community.

Joel
May 13, 2022