Pharmacists are a terrific resource for people who are trying to quit smoking. Surprisingly, I’ve discovered that pharmacists can use their knowledge of smoking cessation to become better investors, too! I know it sounds strange, but the similarities between quitting smoking and investing are uncanny.
Successful investing involves planning for the short-term, long-term, and dealing with some psychological challenges in between. Oddly enough, these same issues are at play when pharmacists deal with their smoking cessation patients.
Many people know that the key to successful investing is focusing on the long-term (i.e. stock markets can give you a rough ride in the short-run, so you need to stick to a long-term plan). Most investors have traditional portfolios that are built for the long-term. However, investing also has a big emotional component to it. For example, many investors panic during a down market and sell at the absolute wrong time. Most investment plans today completely disregard the short-term, which is a terrible mistake. Sure, focusing on the long-term is the goal, but ignoring the short-term is a recipe for disaster. I think the advice to “hang in there and focus on the long-term” is not very helpful to stressed-out, anxious investors during a down-market. Imagine a smoking cessation plan that ignores the short-term, and tells a patient to “hang in there” when they experience cravings or withdrawal. Is that helpful?
Luckily, the investment industry is starting to introduce some better tools to help investors during the very important short-term. Researchers at Barclays, a global wealth manager based in London, have labelled an investor’s short-term time horizon as a “zone of anxiety” where emotions can run high and the possibility of loosing money is high. This “zone of anxiety” is present in both up and down markets: Investors in rising markets run the risk of buying when prices are too high and selling when prices drop to the average; Investors in down markets risk selling when prices are too low, just before prices rebound to higher levels. Both are examples of “buying high, selling low” the exact opposite of what you need to do to succeed at investing.
Similar to a smoking cessation patient, if an investor can get through the difficult and sometimes painful short-term, the chances of long-term success is greatly increased. So, if your current investment plan is a little lacking when it comes to addressing the short-term, here are some tips to help you fill the gap:
- Diagnose your investor anxiety level: Some investors are very influenced by day-today news of the stock market, while other investors completely tune-out the market noise. If you are a do-it-yourself investor, Barclays suggests that your trading frequency may provide clues as to your investor anxiety level. Barclays found that high frequency trading is a symptom of high investor anxiety, while low trading means low investor anxiety. High anxiety investors need to guard against knee-jerk reactions to the market.
- Use an advisor: Many pharmacists use an investment advisor to help them through short-term difficulties in the market. Filtering emotional reactions through a professional advisor is a great way to limit costly short-term mistakes.
- Assess your investment knowledge: Some investors react to short-term market volatility by not investing in the stock market at all. While this is an option for some, most people need a return that is higher than the low interest rates today to achieve their goals. A better option for pharmacists with low investment knowledge is to employ the services of a professional advisor.
