Your Brain On The Market
The title of this blog is taken from the “This Is Your Brain On Drugs” public service announcement that was run by the Partnership for a Drug-Free America in the 1980s.
The video shows a man talking about the dangers of drugs. He holds up an egg and says, “This is your brain.” Next he turns to a hot frying pan on a stove and says, “This is drugs.” He then cracks open the egg, fries it, and says, “This is your brain on drugs.” Finally he looks up at the camera and asks, “Any questions?”
Why is a wealth management firm talking about brains getting fried?
It’s to remind everyone that powerful stimulants can impact our investment behavior. Drugs are stimulants, for sure, but so is money.
Recently, WealthManagement.com published a story discussing just how powerful a stimulant money can be. The daily brief gave an overview of a book by Kabir Sehgal, Coined.
The following is from a transcript of Sehgal’s YouTube video that highlights his book:
“I looked at the topic of what’s happening in the brain when we deal with money.”
“Studies that compared [the brain scans of people trading] to those who were high on cocaine… were almost identical.”
Yes, your brain also gets fried on money.
Even without this research, however, I think we have all felt our brains light up on stock market related emotionally-charged days – especially during drops.
Just as it is almost impossible to resist slowing down and taking a look at a car wreck, it is very difficult to resist sensational headlines like:
“Total Fail”
“U.S. Stocks Post Worst 10 Days In Recent History”
A recent favorite was the following headline, which is both emotionally charged and inaccurate:
“Stock Exchanges Plunge Into Bear Market Territory”
I will not mention the well-respected daily financial paper that published the headline above, but will remind you all that a bear market is a 20% drop, not a 10% drop.
Hearing that the market is down 10% certainly gets our neurons firing, but it is good to reminder that 10% drops are not uncommon, especially related to this old saying:
“Investors create 50 year floods every 5 years”
And yes, it’s OK to smile when you think about the words “investors create”.
We constantly get calls asking our opinion about where the market will go next. We don’t have a crystal ball, but we are willing to make the following predictions.
If you continue to see the market drop, you will see:
- Sensational headlines that are not conducive to good investing
- Wall Street, which loves volatility, not missing out on the opportunity to sell a trade or a product when anxiety is high
If and when these predictions come to pass related to a call for a change, new product or trade, it is often wise to slow down and remember another drug-related PSA:
“Just Say No”
Related Reading:
Keep A Steady Hand On The Tiller
Staying Disciplined and Avoiding Unforced Errors 