The Intelligent Investor: This Is Your Brain on a Hot Streak – WSJ.com
February 12th, 2012
Our Comment by J. David Lewis - As Zweig often does, this column helps his readers put the current investments events into a much longer and more meaningful context than most people are able to see.
By Jason Zweig
They might not have had a choice. The investing mind comes with built-in machinery that sizes up the future based on a surprisingly short sample of the past. Neuroscientists say the human brain probably evolved this response in a simple environment in which the cues to basic payoffs like food and shelter changed slowly and rarely, making the latest signals most valuable—nothing like what todays investors face with electronic markets in a constant state of flux.
Experiments led by neuroscientist Paul Glimcher of New York University found that cells deep in the brain calculate a sort of moving average of past events, giving the greatest weight to the most recent outcomes.
When the latest rewards turn out to be better than the long-term pattern, these neurons fire unusually quickly, spreading a burst of dopamine—the neurotransmitter that triggers the pursuit of reward—throughout the brain. Thus, after a decade of mostly dismal stock returns, even a month or two of outperformance might prompt you into an impulsive
Read Jason Zweig’s column via The Intelligent Investor: This Is Your Brain on a Hot Streak – WSJ.com.
Contact J. David Lewis directly with dlewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 57739
Entry Filed under: Economic Perspectives,Finance Education,Investing,Investment Philosophy
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