When it comes to investing, emotion is commonly seen as a weakness that must be shunned. But new research from professors David Tuckett and Richard Taffler suggests that emotions play an inevitable part in all investing, by amateurs and pros alike.

In their recent book "Fund Management: An Emotional Finance Perspective," the professors present the results of interviews with 52 experienced fund managers in the U.S., U.K., France and Asia. The picture that emerges is one of acute anxiety and emotional conflict.

The bottom line, they say: Individuals and pros perform better when they acknowledge that investing is inherently emotionally charged and when they understand how emotions affect their behavior.

We talked with Prof. Taffler, professor of finance and accounting at Warwick Business School in the U.K., and Prof. Tuckett, a fellow of the Institute of Psychoanalysis in London and visiting professor at University College London, about the role of emotions in investing. Here are edited excerpts of those conversations.

PROF. TUCKETT: What we try to do in emotional finance is start with the fact that the future is unknowable. The key thing about uncertainty is that it inevitably generates feelings. Because it matters to you, because your moneys on the line, so to speak, youre bound to feel emotionally engaged.

PROF. TAFFLER: Although most of the fund managers we interviewed saw part of their particular competitive advantage as remaining, as they described it, unemotional or rational, in practice they were just as emotional as anyone else when they started to talk about the stocks they had invested in. There were lots of examples where they referred to them almost as if they were lovers.

If youre entering into an emotional relationship with a stock, an asset or a company that can let you down, this leads to anxiety, which is often not consciously acknowledged. But its there, bubbling beneath the surface.

PROF. TUCKETT: They have to feel conviction. With a narrative you can join up different facts with emotions, and that creates a sense of conviction, and that is absolutely essential for action. So we arent saying "Oh, theyre only storytellers." Were saying you need to tell a story.

PROF. TAFFLER: One of the fund managers talked about investing in a fast-food company, how he visited the restaurants and looked at what people were ordering. The story was about seeing something nobody else could see, and that feeling gave him the confidence to invest.

WSJ: Could you talk about what investors expect from fund managers and what effect that has on the fund managers?

PROF. TAFFLER: A very important insight in emotional finance is the concept of the fantastic object. Its like Aladdins lamp, which you polish and can have anything you want. In unconscious terms this is ultimately what we are all looking for.

The whole environment is problematic, because fund managers are expected to outperform on a continuous basis, in competition with other equally able and well-resourced managers, and of course not everyone can do this. So actually the fund managers are required to be fantastic objects, to earn continuous superior returns at low risk. This is, of course, only possible in fantasy, not reality.

To be able to do this, fund managers have to be able to believe they can find fantastic objects themselves, stocks with which they can have special relationships and which are going to outperform with minimal risk.

Wishing on a Star

Bangladesh’s Sonali Bank has adopted a core banking system from Indian technology company Polaris, in a move that it says will transform it into the most modern bank in the country.

Sonali Bank is the largest state-owned bank in Bangladesh. The bank has 1,200 branches in the country and also has operations in the UK, the USA, the Middle East and India. The bank had already signed a memorandum of understanding to form a joint venture company, Sonali Polaris FT, together with Bangladesh Commerce Bank, in July 2011.

Sonali Bank required customisation, delivery, installation, implementation and maintenance of fully centralised online real time banking system as well as migration of data and training to the bank’s employees on ORTB in all its branches, subsidiaries and joint ventures around the globe.

“Under the guidance of Polaris Bangladesh, SPFT is the only company providing direct implementation, doorstep delivery and local support infrastructure to Bangladesh’s BFS segment,” said K Srinivasan, EVP & head of the Indian subcontinent, Middle East, and Africa business at Polaris Financial Technology. “Designed by bankers, our Intellect core banking system is highly scalable and caters to both private and public sector banks in the country. Supporting the vision of the bank, this implementation enables them to move towards next generation banking technology that provides them with a competitive service edge and faster go-to-market. On complete implementation across its 1200 branches, Sonali bank will serve as the most modern public sector bank in Bangladesh.”

Bangladesh has seen a host of new banks cropping up in recent months, as part of a government-driven push to improve financial inclusion in the country and drive up economic activity. Approximately 60% of Bangladesh’s 150 million population is currently unbanked, while two-thirds of the country’s population is still employed in agriculture, according to figures provided by the UN.

In April, new Bangladeshi bank South Bangla Agriculture & Commerce Bank began operations using Temenos T24 as its core banking software. SBAC Bank is one of nine new entrants to the Bangladeshi banking market this year.

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