A few years back I conducted an interesting self-experiment. I never used to exercise with music unless I was at a gym where music was being played, and then invariably it was merely background music. On a 10km run I knew my timing down to within a 10 second time frame, and hadn’t been able to beat my best time for quite a while. Then came my experiment. I ran with an i-Pod and played upbeat dance music. I completely cracked my time by a full 15 seconds and continued to better it up to 30 seconds with the use of upbeat dance music. I then did the same thing but played a “chill out album” and found my time was affected negatively. It’s a challenge getting your emotional state pumped when you are listening to music designed to make you fall asleep. I’ve subsequently tried all sorts of music and have found that without exception, if I play upbeat high tempo dance music while exercising, I’m faster, more energized and typically perform better. It affects my psychology and thus my physiology.

This is of course nothing new or revolutionary. We’ve all been to rock concerts, dance clubs and wild parties, so I’m sure you can appreciate the heady mix of sexy girls, alcohol and load music and its effect on our emotions and subsequent actions. Hands up anyone who hasn’t done anything stupid in the heat of the moment… Yeah I didn’t think I’d see any.

Psychological Manipulation Is Prevalent

Following on from my experience with my trusty i-Pod I subsequently came to know an experienced and very successful promoter whose task it was to market products at various seminars. He showed me how the use of emotional language combined with colours and relevant music was an incredibly powerful tool. He showed me how he instructs promoters in the “art” of psychological manipulation. Speak to people of danger, fear and despair while playing depressing morbid music as a background theme, and coincidentally use slides with the colour red to enhance fear, anxiety and negative or depressing emotions. Then provide the opposite, which was naturally the product on sale. This involved painting vivid pictures of pleasure, the colour green and happy music. For the final sell technique this particular gentleman and his company used dance music played really loudly to get people up out of their seats. It seemed like something I would have seen only at a kindergarten, but it worked astoundingly well on grown adults!

You might remember the colour coded threat system enacted after the events of 9/11, where citizens were subjected to those ridiculous alerts complete with symbolic colours. For anyone wondering what on earth the point of those were, they were designed to instill fear amongst the citizenry, who would therefore be far more malleable to buying into all sorts of other equally ridiculous escapades.

At The End Of The Day, The Decision Is All Yours

These “tools” of manipulation have been used multiple times throughout history, including very efficiently by Adolf Hitler.  Understanding when we see it and how it makes us react is important. What is really important is not the terror threat system, the happy music or the pleasurable pictures, but being able to realize where and when these “systems” are in play, and then being able to divorce ourselves from the obvious psychological impact.  Not doing so can cause us to make irrational and poor decisions based on emotion, with no basis in fact, reality and fundamentals. Nobody would ever consider making important decisions while intoxicated. The dictionary describes intoxication as “Stupefaction or excitement by the action of a chemical substance.” How different is this from allowing yourself to be affected by your environment or stimuli from it?

7 Questions To Ask Yourself Before Making Any Investment Decision

When you are making a decision on a stock to buy, a trade to make in the FOREX markets or whatever, it pays to stop for a minute and judge your own state of mind and levels of emotional buy-in.

Don’t let yourself get caught looking at the glossy pictures, fancy graphs etc. Instead focus on the basic 7 I always run through in my head in the first minutes of assessing any investment.

Question # 1

What size is the investment? Don’t get caught buying more than you can afford, no matter how good it looks. Equally make sure that if it stacks up buy enough to make it matter.

Question # 2

How long will you realistically have to wait to be paid?

Question # 3

Quantify the final ROI. For this you need to take into account #2. Providing capital to a company that will give you a double is one thing but if you have to wait for 10 years for that double then we’re talking about a different deal altogether.

Question #4

How much capital is in the bank? Note I said capital and not lines of credit or promises from Auntie May. I don’t want to hear 5 minutes of drivel either. A simple dollar amount is all I need as an answer.

Question #5

Following closely on the heels of the previous question. What is the burn rate? Some simple math will now tell you the lifespan of the business as well as their urgency for capital and their ability to go bankrupt….ha!

Question # 6

No matter what the deal, make sure you have a decent understanding of alternative uses for your capital. Could it be better used to build another bedroom for Johnny who is sharing with his brother? Does a 10% return with a lot of risk make any sense when you could buy a 5% dividend paying blue chip?

Question # 7

Closely tied to point #4 I like to treat each and every liquid stock in my portfolio with what I call the “it’s a new day” approach. This entails pretending that you don’t own the stock. You ask yourself the question: would I buy this stock today if I didn’t own it already? If the answer is a negative you need to lighten up and possibly exit altogether. If the answer is yes then why don’t you have more exposure? If you’re waiting for better entry levels that’s fine, as that’s part of a smart strategy, but it is important to evaluate your portfolio in this fashion as it eliminates any “love” for your holdings. They’re not going to keep you warm at night, that’s for your partner to do so don’t treat them like your partner.

The above questions stand for most any investment with questions 4 and 5 being especially relevant to direct private placements.

Chris

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones