Tuesday, July 22, 2008

Ruled by Emotion?

Yesterday I turned to the MSN Money website to receive my weekly dose of gloom and doom from Bill Fleckenstein. In his column Contrarian Chronicles Fleckenstein has been arguing that the end to our financial crisis is far from nigh.

Be that as it may, I was struck to read Fleckenstein's declaration that all human beings are ruled by emotion.

In many circles this counts as dogmatic truth. The problem is: contrarian investing requires you to take positions that are contrary to the emotional mood of the day.

As Baron Philippe de Rothschild famously said: Buy when there's blood in the streets. Or as John Templeton put it: buy what no one wants and sell what everyone wants.

Either way, the contrarian investor, by definition, is not ruled by his emotions. He profits from the market extremes caused by the emotional excesses of others.

Surely, people are prone to emotion-provoked extremes, but they are also capable of stepping back and making decisions that are contrary to the pull of their emotions.

The conclusion: people are ruled by emotion except when they are not.

Speaking of being ruled by emotion, directly after Fleckenstein's article was one by Liz Pulliam Weston. Wading into what is often the most emotion-laden of human relationships Weston recommended that couples manage their marital assets as though they were running a business. "Get real," she said, marriage is more than a romantic arrangement.

Of course, Weston was aware that many readers would find her approach somewhat cold. When her colleague MP Dunleavey had previously advised women who were seeking divorces to plan, prepare, and organize themselves financially, the message boards lit up with undisguised hostility.

These two authors seemed to be telling women not to allow themselves to be ruled by emotion. They seemed to be conspiring to wring the last ounce of feeling out of marriage.

Were they telling women to ignore their hearts and to suppress their emotions? Weren't they simply trying to save women from the perils of blindly following their emotions? Weren't they simply telling women to pay closer attention to reality?

Weston's argument was deceptively simple. We all know that more marriages come to grief over money than over sex, drugs, and love. Therefore, to make a marriage work, why not run its finances like a business. Couples need to learn how to budget, how to organize their spending, how to save and invest. And they need to do it together, as a couple.

In many quarters today, the terms "husband" and "wife" have been superceded by the more neutral "partner." If we take the term seriously, we might ask a young couple preparing for marriage if they would be happy to be in business with each other.
Would they be happy to have each other as business partners? Like it or not, if they marry they will be in business together.

To me this is a far more constructive contribution than the remarks by psychotherapist Tina Tessina on the Yahoo site. Her view, based merely on a collection of anecdotes, is emotional connection makes relationships work.

The therapy culture takes this to be dogmatic truth. But, isn't it irresponsible to tell people that if they love each other enough they will not have any problems, over money or anything else? And doesn't this message tell people that relationships do not need to involve work... either to save money, to budget expenses, or to choose investments wisely?

And Tessina seems not to have noticed that emotions can also be negative, and that negative emotions can also bind people together in infernal relationships.

Strangely enough, connections based on anger and jealousy, resentment and hatred, are often quite durable. Some people would not know what to do with themselves if they did not have their daily dose of marital combat.

At times, positive and negative emotions co-exist under the same roof. The ensuing turmoil is the price for allowing oneself to be ruled by emotion.

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