between the critter brain and the human brain, and how beliefs coded
in the more primitive, instinctive brain can raise havoc with your
investing behavior.
It's interesting to note that influencing belief systems may not be
specifically about money. Other beliefs can get generalized and affect
your attitude about money. For example, your primitive brain
might be coded to stay with the crowd (just like it did 10,000 years
ago on the African plains). This belief is very powerful (the part of
the brain that lights up in response to pain is the same part of the
brain that, in this case, lights up when going against the crowd).
Interesting, isn't it? Are you starting to understand how the critter
brain might be working against you when it comes to growing your
money? Trying to stay safe is a big contributor to why
investors inadvertently buy at the top and sell at the bottom. Buy
what is hot, buy what is exciting, and in the process of staying safe,
investors are likely to under-perform the S&P 500. An
unmanaged S&P 500 index fund beats 87% of the world's money
managers because the critter brain is wired to run with the crowd,
even if the crowd is losing money. This could be a problem if you want
results different from what the crowd is getting. Both the
critter brain and the human brain are good at what they do because
they learn very well. The critter brain learns quickly, early in life,
and then locks in that learning to keep you safe for all
eternity. The flip side is that it's very difficult for that
brain to unlearn. Most of what it has learned about growing money
doesn't work, yet it continues to serve as the basic driver of our
instincts. If you want a different experience, you will have to
recode your brain. The Solution We have two choices: 1)
Unlearn what we and our ancestors have learned over eons (this could
take many years), or 2) Create a situation that prevents the survival
part of the brain from sabotaging or playing a part in stock market
decisions (this takes days). You'll want to create a situation
in which the critter is not paying attention, right? The way to keep
it from participating in stock market decisions is to eliminate the
"triggers" or "patterns" that the brain recognizes as not
survivable. In the investing world, these patterns are called
"investing biases." When we are stuck in an investing bias, we are
prevented from objective planning; we become subjective and start
guessing. This puts our animal brain in a situation where it needs to
ask the question, "Can I survive this?" There are many
investing biases, and some of the most common are stress bias, future-
forward bias, reaction bias, relationship bias, familiarity bias,
story bias, self-attribution bias, over-confidence bias, false-
anchoring bias, news bias and illusion of control bias. If you are
human and have been born on planet earth, regardless of how you earn a
living, then you have these biases already hardwired in your primitive
brain. If these biases are taken out of the investment
conversation, we can eliminate that part of the brain's influence; it
doesn't even think of asking the question, "Can I survive this?" and
then your human brain can go to work. Eliminating
investing bias involves four connected steps. The steps are simple,
but they must be done congruently to prevent the critter brain from
being triggered. Let me share one of them with you: If you want to
bypass the primitive survival brain, you must limit contact with the
stock market or your individual positions to no more than once a
month, and I'll tell you why: Losing money is coded as pain in
the brain. If you check your investment Monday morning and it is
down $100, even if you are up $5,000 in the stock, this loss will be
coded as pain and will carry a negative weight. This weight is four
times heavier than a win or winning situation, and the weight will
tell your brain that you are in danger. Again, when the critter
brain thinks it's in danger, it goes into fight or flight mode, which
leads to actions that will not work for the benefit of your stock
market portfolio. Under control of that brain, the human will do one
of two things with its investments: 1) Sell its winners way too fast,
or 2) Keep its losers way too long. If you choose to look at
the market every day, hour, or week, then in order for your brain to
register a positive experience, you will have to be winning five times
more often than you are losing. The probability of this is so low that
it almost never happens. The best investors in the world only win 40%
to 50% of the time, not 80% to 90%. And so the solution is to limit
your contact with the stock market. Simple, but not easy! The
three other steps, in combination with this one, will help you manage
your downside risk while allowing your winners to keep growing. These
four steps will keep your critter brain out of the loop and will allow
your human brain to make the choices you want made. If you make
the changes I recommend, you will soon be looking back and noticing
how much better your money is growing. Some of you may be satisfied
with the results you are getting from the stock market. If you are,
then keep doing what you're doing. For those of you who would like
different results, you will be amazed at how you can achieve them with
just one or two small shifts in your investing behavior. The
best is yet to come.
Making Money In Stock Trends: http://www.trdeshadow.tk/
� The
best is yet to come.
Making Money In Stock Trends: http://www.trdeshadow.tk/
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