We know corporations are legally bound to maximize self-interest. What about investors? The act of investment is in “laying out money or capital in an enterprise with the expectation of profit” ( wordnet.princeton.edu/perl/webwn). Investment in financial markets occurs through the purchase of financial instruments. Profit is expected is through some combination of interest, income, and capital appreciation.
Investment varies from speculation, which carries with it the sense of higher risk, of gambling. Investment then, is also a commitment of time, energy, effort and thought to the investment project. That project may be considered a campaign in that it is imbued with an overall strategy and may also require momentary tactical shifts during periods of instability. In this sense, investment approaches its military sense of “siege”— in “surrounding an enemy fort…to prevent entry or escape” (en.wikipedia.org/wiki/Investment (military) ). And, as with a siege, investment requires patience in fulfilling its objective.
Here, the self-maximization of interest of investor varies from the self-interest of the firm in which he invests. Firms create emotional cultures through vision and action that shape the lives of their employees. Their employees, in turn, balance emotions born of personal, familial experience together with those generated in the workplace. Certainly, that balance may be reflected in organizational decision making. But the firm in which the investor invests, the firm represented by balance sheets and annual reports, is enabled structurally through the coordination and integration of many people, to enact its plans without the kind of emotional experience felt by the retail investor.
Corporate decisions are not made unilaterally by workers; but in concert with supervisory and managerial agendas and plans. Within these boundaries, decisional worlds are simplified, with best choices enacted. Not so for the retail investor.
Decisions about the investment campaign, decisions about its strategy and tactics, are often difficult to bear. Sharp emotion sometimes clouds judgment; and all investors have their war stories of loss. Together with the anxieties of patient endurance and clear vision under pressure, retail investors face another type of emotional hurdle, basic to the very fabric of investing.
Because the act of investing is the act of endowment; and with endowment requires a trust in placing power or authority in an external object. Investment, in the sense of granting formal office to leaders, often involves a symbolic act of putting on robes, as when we graduate from college. And here, financial investment passes over the social science border from economics to psychology.
Actually, because of the emotional dimensions both of defining self-interest and of staying the strategic and tactical course in investment, psychology has been a constant dimension of investment all along. But here, investment shifts from hard numbers to human desire: because the investment vehicle— the asset charged with maximizing personal, financial self-interest— becomes cloaked with the investor’s fantasies and expectations exactly as commoners become cloaked with the vestments of royalty at coronation.
Becoming aware of both dimensions of investment- the economic and the psychological- is the investor’s key to resilience.
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