Meditation is becoming a trend on Wall Street and among active stock investors. At an investing conference, famed billionaire investor Ray Dailo expressed that meditation has helped him gain an upper edge on Wall Street. So why are investors flocking to meditation to hone and improve their craft? Ray Dailo said that meditation “more than anything in my life was the biggest ingredient for whatever success I’ve had.” On the surface, few may see the connection between stock investing and meditation. But the cognitive mechanisms needed in order to perform well in the stock market are the exact same mechanisms that meditation trains. What are those exact mechanisms? They seem to be emotional regulation, increased attention, and increased patience. All these three elements are extremely important in doing well in the stock market.
Knowing how to regulate and control your emotion is extremely important when it comes to making good investment choices. Emotional distancing is extremely important in avoiding the emotional pitfalls of making rash decisions by reacting to market sentiment (or “Mr. Market” as Warren Buffett famously calls it.
In addition, meditation has the fascinating ability to separate the ego from the decision-making process. Seasoned investors often suffer from confirmation bias. Confirmation bias is a fallacy of the ego in which you only seek information that confirms an already formed conclusion. But this confirmation bias is primarily driven by the need to be right (publicly). In trading and investing, this ego can do a lot of damage as it clouds the ability to take in information that does not confirm our ego-centric view of events.
John Coates also talks about the role of ego inherent in investors, in his book The Hour Between Dog and Wolf. In good times, traders and investors can become overconfident and cocky. In bad times, the ego becomes extremely fragile and get in the way of good decision-making. Not only is overconfidence an ego issue, but so is the lack of confidence. By being able to separate the ego from the data, you are able to objectively look at the facts and make decision not based on the ego, but based on sound decision-making principles.
A study conducted by Andrew Hafenbrack shows that meditation can debias the mind in only 15 minutes by drawing away the mind from emotional focus of the future and by reducing overall negative affect.
An active trader needs constant and sustained attention in order to process the barrage of information about markets and the economy. Meditation seems to be great training for the sustained attention needed to be an active trader. Buddhist monks have meditated for decades long in order to train their brain to sustain their attention for hours through meditation. But you don’t have to wait decades to see results. Numerous studies show that benefits of meditation can be gained within a few weeks of meditation, with sessions lasting less than an hour each.
A study conducted by Yi Yuan Tang found that focused attention showed improved in less than 8 weeks, with participants meditating five days a week, 20 minutes each session. Another study showed that increased attention gained from meditation translated into being able to process information more quickly and accurately. Being able to process charts, news, and financial statements can mean the difference between profiting and taking a loss.
Meditation can be extremely monotonous, dull, and boring. But it is these traits that allow for the training of patience. As you become a more proficient meditator, you get less worried about how long you’ve been sitting there. The antsiness stops and you become more patient as you become more focused on the present.
This trait of patience is important as it can prevent you from making bad decisions based on impulsiveness; many assets require years of patience before finally paying off. And if you can sit through an hour of meditation, you can sit through anything.
Dealing with everyday market volatility takes a great deal of patience, attention, and emotional regulation. And that is essentially what meditation preaches and teaches. Emotional control, patience, and attentional focus are crucial to doing well in both bull and bear markets.