Social Comparison and Stock Market Psychology

Taking Control of your emotional life will be the difference between a long prosperous career in stock trading or burning out and and destroying your account.

· 6 min read
Social Comparison and Stock Market Psychology

Social comparison could quite conceivably be the biggest killer of a healthy portfolio that exists today. It's a pretty big statement but really explains why fear of missing out, adding too much risk and trading random stocks is so common in trading.

Why does it always look like everyone is "crushing it" while our gains or losses aren't even worth talking about, or so we think.

I fall victim to social comparison on a number of levels. When friends get hand-outs or outperform me, my ego goes into overdrive and I will do almost anything to get back into my "Alpha zone" where my advice is the gospel, my trades are the best and guess who is winning "ME!". It feel hypocritical to write about ego and then still fall into these emotional traps.  

It can also be very damaging to friendships and overall mental health to measure our relationships in terms of who has what and who is "winning". Even worse when those around us pretend not to care but clearly do in their actions. It's a game that subversively damages relationships as "who is right" becomes more important than the other person doing well.  

It is however nearly impossible to switch off this comparison and requires deep self-knowledge to spot (and change) the behaviour. This is for a host of quite primitive reasons:

  1. Our image and ego are linked to an old social dominance hierarchy
  2. Heuristically speaking, wealth and dominance attracts a mate and is genetic
  3. Mass media perpetuates these primal triggers and reinforces them with dopamine response mechanisms to keep us being
  4. Most of the current societal incentives are built on these foundations
  5. People are not conscious of the behaviour in themselves and are developmentally unable to notice these patterns

Unfortunately , trading stocks is less primitive and more process and system based. So when creating a trading plan, we are calm and in a focused state but when we trade we have our "hunter" and dominance mind poised for "success". two opposing systems creating inner conflict when we click buy or sell.

This dichotomy  however is exactly where we need to choose; will I follow my process and be honest with myself and face the rejection of society and it's notions? or keep learning but not applying trading skills and techniques.

This cycle is so hard to spot that people spend their entire lives living someone else values, feeling that they always need more of something and totally overlooking any possibility of true self-actualization. That is, creating an authentic self which you can curate and develop over time, one that is imperfect but open.

Following Others

It becomes quite a circular process as we blindly follow others into trades, revenge trade with excess size to "win back" money and basically do whatever it takes to avoid the work needed to be successful. Success being measured in how we followed the plan not what other people see.

It's very striking to me that following external success as defined by others typically constitutes our own failure. True success is a process of self-knowledge. This doesn't mean we always feel "good", it does mean however, we are willing to take the risks required to explore our own boundaries. Not an easy process, but who wants things to be easy anyway?

After several sessions with my psychologist, I really got into the root of why I would have big success in trading and then go through periods of uncertainty, anxiety and low energy. What I found was the following:

  1. When my friends were doing very well, I would feel quite annoyed particularly if we had the same trading style... and I was losing.
  2. My accountability was at an all time low and I would blame "the market".
  3. At this juncture I would start taking bigger financial risks and looking for external motivators such as possessions to seek status and "prove" (to whom?) that I was the dominant one.

Having gone through this process several times, I got tired of being tired and wanted to make some changes. Although I still struggle with social comparison, unless you are the Buddha you probably do to... I have begun a process of self-reinvention to spot, stop and recognize the pattern as part of my love of the game, not only the result.

By recognizing my body language, emotions and how they impacted my subconscious behaviour, the slow process of letting go social comparison got underway. These techniques have been very helpful to me:

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Writing Down What Matters

Writing things down is transformative  as it takes mental energy that is hard to conceptualize and puts it into the material world. Some good references found from the book Emotional Agility. I've taken pen to paper to document and really drill in on:

  1. What my highest values truly are (learning, helping and being financially secure)
  2. Why I am so jealous (fear of rejection, anxiety, bad past), to label and understand these frustrations and where they came from
  3. What infuriates me about others winning

Just opening a book, jotting these things down and freestyle brain dumping onto a sheet of paper for 20 minutes is proven to lower blood pressure almost instantly. Source: Emotional Agility

I really ask myself fundamental questions here about what it is my perfect life would look like. If I look back on myself in 20 years from now, would I be proud of what I valued? I ask myself this question every night. "Am I proud of what I did today if I looked back on how I acted?"

It's okay to be jealous, it's okay to make mistakes! If I didn't know about these emotional issues I could spend my life going down the wrong path, but I do know about them so "how lucky am I to learn!".

Practicing Gratitude

One thing I've found with social comparison - we always look at those above us but are seldom appreciative for what we do have.

Every morning before I get into emails and charts, I write down what I am truly grateful for. My health, the running water and things I take for granted and my amazing family. Also, I am eternally grateful for the gift of life itself.

I think about it in quite an abstract way sometimes. The very likelihood of our existence is so small statistically speaking, yet we do exist! And we have the capacity to change our thoughts and re-invent ourselves on a daily basis.

I find this anchors my values nice and early in the day. Being happy with who I am and not what I have is also a paradox as it allows me to have more. Without recognizing what I do have, how can I expect to want more? More of what? Money? For what reason? These fundamental roots keep me stuck on following my own plan and not that of others.

Building These Actions into Habits

Meditating, writing things down and creating a more authentic picture of who I am and where I want to go financially, spiritually and physically makes it far easier to follow a defined process which I track every day.

Making a Formal Plan

As the saying goes, "....all you are is the sum of your habits " or "thoughts becomes things". So to truly test if my values and habits are aligned, I just track them!

A fabulous resource on this is James Clear's atomic habits recommended to me by @LoneStockTrader. Two people I respect and trust because of their honesty and humility.

Being a Good Coach

I think it's important to recognize that deep sub-conscious drivers such as social comparison make the difference between what it means to be a success or failure, as defined by... you. Throughout this process it's important to watch how you talk to yourself and ensure that the internal voice or coach is giving constructive feedback.

Defining your own success criteria, being gentle with yourself and developing a way to get or give systematic feedback on how it's going is ultra-critical. Just like any other worthwhile pursuit this will take time and probably never really ends. This should be empowering not debilitating.

With a constant battle for your time, attention and psychic attention, it is more important than ever to create your own yardstick, get stuck into a process you want to perfect and define your own success.

I highly recommend starting this process today. Are you trading because you want to get rich and have the things society has told you to want? Or are you trading to make money and be free?

The choice is truly yours. Finding your "why?" and creating specific habits to get there will without a doubt serve you better than following someone else into battle. It's time to take control of what you want and live consciously.

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