The Burden of Rationality

Image by Gerd Altmann from Pixabay

It’s well known  that human beings are driven by emotions. Even the most skillful, trained and experienced individuals can’t deny this. Emotions intervene in our day-to-day lives but we don’t feel their influence. 

Quite a few books have been written on psychological biases and how to boost your logical reasoning. These books are worth reading and it’s worthwhile to strengthen your logical side. But at times the burden of rationality becomes too difficult to carry. You will feel a struggle between your rational and emotional sides on such occasions. Curiously, you will find a “logical” reason to do what your “emotional” brain says. Indeed, if you can’t be rational, you can always rationalize.

The need is then to balance your rational and emotional sides. It’s okay to act irrationally if it’s a trivial matter and there are no major consequences of it. In fact, it’s desirable to do so. Those who try to be fully rational (which is impossible of course) have to spend a lot of time fighting their own emotions. It’s better to surrender to them for small things, save energy and focus on the bigger things. Also, by being irrational occasionally, you can make amazing discoveries, feel more lively and be thrilled. 

In stock research and investing, the rational mind is actually at a disadvantage. The stock market is no perfect mechanism; there are no clear rules that drive it. Those who are trained in logical thinking, especially fundamental analysts, struggle to digest irrationality. It’s okay to analyze companies across traditional metrics, through the balance sheet, income statement and cash flows, but it also pays to be perceptive. 

Peter Lynch had called stock investing more of an art than science. As you spend more time investing, you naturally develop insights. It pays to trust those insights rather than cling to the numbers. Putting aside the burden of rationality can open new doorways, both in real life and the stock market.