The Investor Mindset in the Age of Coronavirus: Overcoming Fear

Investors in the time of COVID-19 are in completely uncharted territory. Navigating this landscape can be fraught with new and unexpected obstacles.

In this three-part series, we’re examining the mindsets investors can take in approaching these challenges, campaign strategies to determine the best course of action, and tactics for achieving success. Check out the rest of the series here:

Part Two: “The Investor Mindset in the Age of Coronavirus: Strategies for Success”
Part Three: “The Investor Mindset in the Age of Coronavirus: Tactics to Drive ROI”

While talking with a friend, we were discussing the contradictory nature of this pandemic. On the one hand, it seems like most of the world’s population is quarantined inside their homes for the first time in centuries. On the other hand, the world outside is looking more beautiful than ever and many people don’t yet know someone who has been seriously ill with COVID-19.

Humans are remarkably resilient, but we fall short when trying to grasp the consequences of an invisible enemy that has the ability to spread exponentially while remaining undetected in its hosts for a week or more.

This struggle between our desire to get “back to normal” and the reality of the world around us will likely not abate for a long time, but the people who are going to come out of this stronger than they went in are those who prioritize logic over emotions.

After years of legal training and business building, I’ve learned the first step is always to develop an awareness of the situation. This can feel like a waste of time, but it’s what allows us to self-identify whether we are on the right path or not. Action is irrelevant if it’s directed down the wrong path.

But we’re limited in our ability to evaluate dangers that we haven’t experienced. Understanding the threat of a virus when it’s primarily represented as numbers on a screen is difficult—the concept of 1,000 dead is just as hard to grasp as 200,000 when it’s not in our immediate experience.

Hopefully, it will remain outside our immediate experience, but that doesn’t mean we shouldn’t be prepared. Which brings me to my first mindset…

Mindset 1: Better Safe Than Sorry

Until we have better data, the only reasonable course is to stay conservative. In other words, hope for the best, but plan for the worst.

Greed will be a downfall for many here. Those that act too early, before they have certainty, are trying to time the markets in one way or another. A few will make good money, but the vast majority will get burned.

Remember, there are trillions of dollars moving through the economy and markets right now, up and down and all around. That kind of force doesn’t care about you and won’t respect your decision. Be careful!

The solution to this is simple: Stop worrying about maximizing your profits right now.

It’s not the end of the world if you don’t grab something at the absolute lowest price, but taking advantage of a low-risk modest discount will put you in a great position a few years down the road when the market hopefully bounces back.

Mindset 2: Beat Analysis Paralysis

We’ve all heard the phrase “analysis paralysis,” but why does it exist?

This circles back to my earlier point about human nature—we’re essentially cavemen living in a modern world with modern technology. We may have cell phones and spaceships, but our neurological wiring is still primitive.

We’re built for a world that no longer exists, so our ability to assess risk is completely backward.

Modern risks still “feel” just as dangerous as the predatory mammals our ancestors feared. The stock market won’t eat you like a lion ate hunter-gatherers, though it certainly can destroy you. Treating those things as if they’re the same type of threat leads to errors in decision-making.

I have a simple process for overcoming these base instincts and guiding my mind toward clear intentions. It’s as easy as asking a few questions.

Question 1: Is my fear real?

When emotions go unchecked, it’s easy to slip into autopilot and let certain behaviors take over. When it comes to fear, I ask myself whether the risk I’m feeling is an immediate threat to my existence.

It almost never is.

If it were actually a threat to my life, I wouldn’t be taking the time to think. A good shortcut is, “do I have time to think?”

If so, chances are that everything is likely going to be okay. Once I’ve calmed myself into the realization that my fear isn’t something life-threatening, I use a second question to hone in on the source.

Question 2: Am I afraid of the past or the future?

Identifying the source of my fear helps me reorient myself to the present and determine whether I’m fearful of reliving the past or imagining the future. This gives me control over my emotions and leads to more logical decision-making.

We’re in a quandary now, though. We can try to be as conservative as possible, but that has its downsides. We want to jump on new opportunities without overdoing it, which leads us to analysis paralysis where we cycle between fear and greed responses until we finally just do something to make the rollercoaster stop.

This leads to my third question.

Question 3: What is the cost if I guess wrong?

Most of the problems we run into are because we lean too optimistic or too pessimistic. The way to reel that in is to assume we’re going to get it wrong. What happens then? Do we take a loss but keep ticking? Or do we destroy our future and live in regret?

Perhaps a better way to phrase this question is…

Question 4: How much time and money would it take to get back where I am now?

This helps you clarify whether you can absorb the risk if you chose wrong. If it would only take a year to recover, the gamble seems like it would be worth it. A 10-year recovery? Maybe you should wait for a better deal.

The true cost of a decision is the impact of getting back to the status quo. Instead of wondering about what the absolute best solution is, make decisions quickly and act—as long as reversing the effects of those decisions doesn’t come at a high cost.

In the next two installments of this series, I’ll share how to take these big questions you’ve been answering and put them into action.

What mindsets are you using to make decisions right now?

Share your approach in the comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.