“If there’s no meaning in it, that saves a world of trouble, you know, as we needn’t try to find any.” (The King, Alice in Wonderland)
There has been an interesting debate taking place in the world of sports psychology for nearly 20 years. The question is whether the colour that an athlete or sports team wears can make a difference to the way they perform.
This was first explored by two researchers who spotted a trend at the 2004 Olympics. They looked at the results from four combat sports, and found that competitors wearing red won significantly more often than those wearing blue.
They concluded from this that wearing red might improve an athlete’s chance of winning.
More studies published since then have seemed to support these findings. One even suggested that the referees can be influenced by colour. It argued that they are likely to judge in the favour of teams wearing red more often than others.
What’s really interesting, however, is that this is not the only area where colour has an influence. A recent academic study made the case that investors are influenced by it too.
And, once again, red was the colour under scrutiny. Since we associate red with danger, stop signs, ‘red flags’, and being marked by our teachers at school, we seem to respond to things written in red in a particular way.
The researchers found that when stock market returns are written in red, for example, this prolongs pessimism in people when compared to how they react to exactly the same information presented in black or blue.
This is interesting, because it’s not just about colours. As the study noted:
“Much like our everyday choices, our financial decisions are likely to be shaped by factors which are not specific to the decision at hand.”
The point is that no matter how rational we think we are when it comes to making financial decisions, we are always being influenced by outside factors. Some of these may be entirely irrelevant. Many, we won’t even know about.
If something as simple as the colour in which something is written can impact how we decide to save for our future, that should give us reason to be a lot more careful.
We should understand that the idea that anyone can be fully objective and analytical in any decision is a mirage. Our minds are so complex that we are taking in and processing information on all sorts of levels, and a lot of it is not even pertinent to what we are thinking about.
This is why one of the most important pieces of financial advice is to stay invested for the long term.
Put another way: make one big decision and stick with it. Don’t try to make a series of decisions over time. That is because the more decisions you make, the more chance you have of being influenced by external factors that have nothing to do with what you are actually trying to achieve. And the more chance you will have of doing something that will, ultimately, be detrimental to your financial health.
Objective, professional advice is your key to rational investing!
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