Learned optimism in investing

Article by Wai-Yee Chen

14. Jul, 2010 • Categories: Advice, Derivatives, Market Psychology and Trends • by Guest

Learned optimism – Unlearning negative attitudes in investing

“I have not been more disappointed in the 20 years I have been investing in the share market; I have now a sense of loss of control in my investments since the GFC.” commented Dr Wong to his Adviser. “I lost money through no fault of my own and despite my best efforts.” added Dr Wong.Have you ever felt the despair of having your years of hard work and savings evaporated, caused by something called CDO which you have never even heard of? The rippling effect of this loss is not just confined to the financial world, but with families having to postpone home renovations, overseas holidays and older workers deferring retirements. Many investors have lost confidence in the financial systems since the GFC, some have vowed never to return to investing in shares and others sold out and are sitting on cash. If you have had similar experiences, you are not alone.

When faced with an adverse or hugely disappointing situation, it’s not uncommon for us to give up, stop trying or accept our fate. We feel powerless to change it and efforts in changing it seem futile, though the situation may well be changeable.This psychological state is called learned helplessness and was first discovered by Dr Martin Seligman in experiments carried out on animals, which were found not to run away even when they could have; after being conditioned earlier to think they couldn’t (by restraining one of their legs). The animals have learned to be helpless.

Not surprisingly, this mental state has been found to pervade humans too. A student who has been failing in his maths exams, remarking “I am stupid” or a person trying to lose weight complaining “I keep putting the weight back on”. Both feel they have failed and want to quit as they feel “they can’t win” and accept their conditions as unchangeable….


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