Is Too Much Stress Killing Your Portfolio?

All of us experience stress in the course of our daily lives, and the leaders among us can experience this at heightened levels. A trio of researchers at Case Western Reserve University, in the seminal article “Developing Sustainable Leaders through Coaching and Compassion,” argued that “leaders are under a steady flow of stress related to the exercise of power and its responsibility . . . [which] could be labeled as chronic stress, with episodes of acute stress (emerging from a sudden or unexpected crisis)” and that this combination can lead to an increase in what’s referred to as the “allostatic load,” resulting in bad consequences for our bodies and minds over time.

For investment professionals, the subject of stress and how to effectively manage it is a perennial topic of interest. In fact, a myriad of stresses are commonplace among analysts and portfolio managers, and those stresses can result in underperformance, according David Tuckett and Richard J. Taffler, coauthors of Fund Management: An Emotional Finance Perspective.

Recently, Frank Murtha of MarketPsych presented a webinar on how to recognize and effectively manage your stressors, with a particular emphasis on self-management and effective client management during times of financial market instabilities. Here are the key takeaways from his presentation:

• Experiencing high or chronic stress causes the release of hormones that induce short-term thinking (particularly an issue for investment professionals), intensify emotions, and inhibit neuroplasticity, which results in an inability to learn new skills. Essentially, the body’s natural reaction to the stress can be an obstacle that derails us from developing better coping mechanisms.
• A critical first step in managing stress is to understand the symptoms you experience when under stress (e.g., tense muscles, nausea, rapid breathing, etc.) and to learn what triggers stress responses in you. To do this effectively, you must engage in and develop awareness of yourself and your environment.
• Murtha argues that, for most people, stress and anxiety arise from feeling out of control and that the antidote is to focus on what you can control about your situation, environment, etc. Making a mental or physical list can help you shift your attention away from the aspects that are outside of your control and towards the aspects that you can control.
• He recommends the ABC model as an effective technique to monitor (and thus learn to control) your own behavior. It involves intentionally challenging your internal “self talk.” You can accomplish this through understanding the activating event (what is happening/has happened to you, behavior or language you’ve experienced, etc.), your belief/typical response to that event (e.g., overgeneralizing, taking something too personally, magnifying or minimizing something, etc.), and the consequence (how your belief/response makes you feel about yourself). By following this process, you can learn to challenge the assumptions you typically make and intentionally work to change how you want to believe/respond in future.
• An effective way to cope with stress is to experience periodic states of renewal through exercising, relaxing, or meditating (for more on how meditation as a mindfulness practice can bring renewal, read my colleague Jason Voss’s post), taking a break, engaging in hobbies, and even enjoying alcohol (responsibly) if you are so inclined.

A complete archive version of Dr. Murtha’s presentation, “Rough Markets, Tough Clients: Practical Stress Management for Investment Professionals,” is available on demand.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.