What is Meditation?
At its core, meditation is just a focus exercise. That’s it. No chanting, or “ohm”-ing, or even sitting cross-legged. Meditation is about mindfulness and developing your brain’s focus muscles. Think of it as going to the gym, but for your head. And unlike going to the gym, it only takes five-to-ten minutes a day. We’re all busy – but who doesn’t have five minutes?
We’ll get to how meditation can specifically benefit investors in a minute. First, we need to talk about action.
The Bias for Action and Investing
It’s psychologically comforting to take action – to try to exert control over something important. It’s called the “Bias for Action”, and it essentially explains why doing something always feels better than doing nothing. If you act and things go poorly, your brain is wired to think “at least you tried.”
But there’s value in inactivity. The bias for action can lead you to make sub-optimal decisions. The most famous example is in soccer: When facing a penalty kick, goalies choose to dive left or right 93.7% of the time. They stay still, standing in the centre of the net, only 6.3% of the time. The goaltenders profiled were the elite of the elite, the best in the world. Surely they know how to react to a penalty kick, right?
The study on action bias shows that professional goalies would double their save percentage if they chose to do nothing on every penalty kick.
Your Mind Impacts Your Money
Imagine you’re a goalie. Imagine taking no action every single time you faced a penalty kick. Imagine that doing nothing was the optimal choice, every time. Feels weird, right?
When it comes to investing, the same principle applies. Making decisions to trade, change your investments, or buy and sell funds all feel good, even if we know impulsive decisions can hurt our portfolios. But we’re only human. Our mental wiring compels us to act, even when situations are beyond our control. So how can we fight back against things like impulsive ideas, or stress, or even boredom when it comes to our investments?
It’s not a cure-all, but one answer is meditation. Yes, meditation – the practice of mindfulness – may actually help you be a better investor. Here’s how five minutes of mindfulness a day could save you money.
(If your first reaction to the word “meditation” is to close this blog, unplug your internet, and put your computer in the closet for a week, I understand. But if you read to the end of the post, you’ll see why meditation isn’t as weird as its sometimes bad PR would have you believe.)
How to Meditate
Good news: Meditation for beginners is pretty simple! A meditation session generally goes like this:
“Typically we sit with the back straight and eyes closed. We focus on the feeling of breath moving in and out of the body. Inevitably, the mind will wander. When we realize our mind has wandered, we simply acknowledge it has done so, and return to the breath.”*
(*Description taken from Drew Scanlon’s “Meditation for Beginners” guide.)
It can feel a bit unnatural at first, but the important part is that last idea – returning to the breath. The point of meditation isn’t to stop the mind from wandering, because that would be impossible. Again, we’re only human. Instead, you acknowledge the wandering, and don’t fall down a rabbit hole of “Ugh, I am not good at meditation” self-criticism.
Don’t worry too much about trying to quiet that nagging voice in your head telling you to worry, or panic, or take action. Instead, try to recognize what your mind is doing, and then re-focus.
A great way to start is with guided meditations. There are number of great apps available (more info below) that offer free sets of beginner meditations, and they all go out of their way to explain important concepts and offer useful tips. Tips a beginner needs, like, “visualize your thoughts as vehicles passing you on a highway.” Sounds a little strange, but it’s more helpful than you might think.
How Meditation can Help Investors
Left to its own devices, the mind sends thoughts, feelings and impulses all the time – but you don’t always have to listen. Being aware of what you’re experiencing and feeling, but staying focused on the present is known as “mindfulness”. And to that end, regular meditation is designed to increase your mindfulness.
Phrased another way, meditation increases your ability to recognize your thoughts and feelings, but not let them cloud your decision making or emotional state. See where this is going?
Getting yourself into the habit of regular meditation can help you stay calm and focused on your investment goals, and make you less likely to impulsively change your portfolio due to panic, stress, or anxiety. After all, we already know your mind is wired for action, even if action isn’t what’s best for your money.
To be perfectly clear, meditation isn’t going to solve all of life’s problems, or make you understand complex financial portfolio strategies that you previously couldn’t. But it will help you focus, understand your own mind, and hopefully make fewer snap decisions about your investments.
Guided Meditation Apps / Sources
For more on the Bias for Action (and other ways the financial mind works) check out Credential Direct’s learning session, “The Psychology Behind Successful Investing”.
The information contained in this post was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This post is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. On-line brokerage is offered through Credential Direct, a division of Credential Securities Inc., operating as a separate business unit. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund.