INVESTMENT & OUR BRAIN

In the book of Your Money & Your Brain, by Jason Zweig, I have found some remarkable and fascinating things. Since for a long time I have been trying to understand better the mental side of trading and I am pretty convinced this is the key part of our job. If we don’t understand and underestimate the mental side of the trading that is the second biggest mistake after the not right money management.

I collected out few point from the book:

• Our brain works in trading like a drug user. We always want more and more like cocaine user. We like the addiction of profit and risking more and more to get that reward.
• The result what we planned is not enough. We need more. That is why we are increasing the position size and taking bigger positions because we need bigger dopamine hit. 
• Losses and gains both effect on our body and brain. We have a stress in our stomach and higher blood pressure if we lose and we feel euphoria when we win. 
• The losses create mortal danger for us. We have bigger emotions if we lose. That is why we are not buying when the market in panic. On one hand we want to make huge profit but our fear from the loss is much bigger on the other hand. 
• Our brain loves to gamble. We always believe sometimes we will hit the lottery prize. And that is why we are taking too much risk on the markets and increase the postion size. Our brain is greedy. We are buying many times overvalued stocks. 
• Gain doesn’t give us happyness. Our mind is weird we always want to win and if we have, finally we are not really happy with that and forget that within the short period. 
• Our brain loves to predict the unpredictable things. But we are extremely poor at forecasting the future. 
• We are always greedy and want more and more. Nothing is enough. Zweig quote a statistic for that: In 1957, the average American earned about $10,000 (adjusted for inflation) and lived without a dishwasher, clothes dryer, TV, or air conditioner. But 35% of people surveyed then said they were “very happy” with their lives. By 2004, personal income had nearly tripled after inflation, yet 34% of the people now said they were “very happy.”

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The BFM Assets Team.