Home
In this issue
April 21, 2014

Andrew Silow-Carroll: Passoverkill? Suggestions to make next year's seders even more culturally sensitive

Sara Israelsen Hartley: Seeking the Divine: An ancient connection in a new context

Christine M. Flowers: Priest's execution in Syria should be call to action

Courtnie Erickson: How to help kids accept the poor decisions of others

Lizette Borreli: A Glass Of Milk A Day Keeps Knee Arthritis At Bay

Lizette Borreli: 5 Health Conditions Your Breath Knows Before You Do

The Kosher Gourmet by Betty Rosbottom Coconut Walnut Bars' golden brown morsels are a beautifully balanced delectable delight

April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

Investing like a psychopath

By Morgan Housel






JewishWorldReview.com | What makes a good investor?

People who are calm. People who take a long-term view. And, according to one study, people with brain damage.

In 2005, a team of researchers from Stanford, Carnegie Mellon and the University of Iowa gave a group of participants $20 each. They were then made an offer: You can flip a coin up to 20 times. If you lose the coin toss, you owe $1. If you win, you get $2.50.

Everyone in this situation should make as many tosses as possible, since there's a 50/50 chance of accurately guessing a coin toss, and the reward for winning is far larger than the penalty of losing. But the researchers found only one group of participants willing to make large numbers of tosses: Those with a lesion in the area of their brains that controls emotion.

Participants with normal brains threw in the towel after flipping a few losses in a row. People don't like losing money, and even if you know the odds are in your favor, a couple of losses will turn you off.

But those whose brains suppressed emotions kept on betting, regardless of past losses. Not surprisingly, given the odds and payoffs of the coin-toss game, they ended up with more money.

One of the co-authors of the study called these coin-flippers "functional psychopaths," since their damaged brains prevented them from being affected by emotions. The non-psychopaths with normal brains remembered how losing felt and became twice bitten, once shy. Their memories blocked rational behavior.

YOUR MONEY AND YOUR MEMORY
Next to losing sight and motion, surveys show losing your memory is one of the most frightening things people contemplate. But we rarely think about how our memories hurt us. As investors, they often do.

We're more likely to remember negative, emotional events than ordinary or positive ones, especially in the short run. That's how it should be: You want to learn to avoid bad things that happened in the past. But it plays a dirty trick on us: "People tend to assess the relative importance of issues by the ease with which they are retrieved from memory," psychologist Daniel Kahneman writes in his book, "Thinking Fast and Slow." Since we give more weight to negative memories, we spend more effort trying to avoid bad experiences happening again than we do trying to benefit from positive ones, even if the positive ones offer a huge upside. It's called loss aversion, and it's the flaw the normal-brain coin-flippers suffered from.

Think about this from the standpoint of an investor. The market falls 50 percent in 2008 and early 2009. That hurts. Then it rallies 130 percent over the next few years, recouping all of your losses and then some. This feels OK, but not nearly good enough to ease the shock you felt from the 50-percent crash, which was emotional and memorable. You remember the crash much more vividly than the ensuing rally, and you change your portfolio to make sure you never suffer through a crash again. You buy bonds, hold a lot of cash and swear off stocks for good. We've seen quite a bit of this behavior over the last few years. And we know it comes at the expense of long-term performance.

Worse, our memories of emotional experiences tend to get rearranged and distorted, so much so that some of what we remember never actually occurred. In his book "Omaha Beach," Joseph Balkoski writes that "one firm lesson that serious World War II researchers have learned is that the reliability of human memory varies drastically from one veteran to the next." Time, Balkoski writes, "can play subtle tricks on the mind, and the historian's thorniest problem is to separate those rare fully substantiated accounts from the more typical yarns that time has established."



Veterans recalled experiences, both positive and negative, that historians could verify were "incomplete, if not inaccurate." Some think Hillary Clinton did this when she recalled coming under sniper fire during a 1990 trip to Bosnia -- an account she later recanted. Clinton may have been completely honest when recalling the experience. Her brain may have just remembered the event differently from how it actually occurred. Kahneman calls this the "Experiencing Self" and the "Remembering Self." They are often two completely different people.

DELUSIONS OF WEALTH
Investors suffer from this flaw, too. Martin Weber and Markus Glaser of the University of Mannheim showed that investors have no idea how they've actually performed, and those who performed the worst -- those who lost the most money -- were the worst at recalling their actual performance. What we remember happening often has no connection to what actually happened. "There is just a lot of self-delusion that goes on when people evaluate their (investing) performance," Kahneman told me earlier this year. "Our memory just doesn't correspond to the facts."

So, what are you supposed to do about it?

One of the best ways to fight your poor memory as an investor is to keep a journal. Write down exactly how you feel whenever you buy or sell a stock. Write down the reason you're making the decision. Write down how confident you are in it being right. Be honest with it.


FREE SUBSCRIPTION TO INFLUENTIAL NEWSLETTER

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". In addition to INSPIRING stories, HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.


Any time you're tempted to drift away from your typical investment plan, consult that journal. Go back and see how you felt about the market in the past. You'll likely discover how faulty your memory can be. I often write about how wonderful market crashes are to long-term investors looking for buying opportunities. I pretend like I can't wait for the next one to arrive. But when I go back and see what I wrote in 2008, I can't help but notice how worried and nervous I was. I worried the banking system would collapse. I worried about a lost decade. And when I review what I did with my money back then, I can only conclude that I was much more scared than I now think I was. It's far easier to say, "I'll be greedy when others are fearful" than it is to actually do it.

That could be setting me up for all kinds of problems. If I think I'll be braver during the next crash than I actually will be, maybe I'm holding too much cash in my portfolio. Maybe I should be fully invested instead of waiting around for cheaper prices. Maybe my asset allocation is all wrong. These are serious questions I need to consider.

Keeping a record about your investing emotions is the only way to fight your bad memory and the dangerous path it can set you on. It might be the only way to invest like a psychopath.

Sign up for the daily JWR update. It's free. Just click here.

Interested in a private Judaic studies instructor — for free? Let us know by clicking here.

Comment by clicking here.

Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.


Previously:


Why you're so bad with your money

8 questions you might have about the debt ceiling

An open letter to everyone under age 30

15 biases that make you do dumb things with your money

If this scares you, you shouldn't be investing

What I plan to do when the market crashes

The three most important words in investing

Monkeys and investing

Two types of risk, two types of bubbles

The secret to financial success: Use ignorance to your advantage

How to effectively fight investors' greatest enemy

Four mistakes that make everyone a bad investor

Learning from the past, and the Next Big Tren

What newspapers were saying when you should have been buying

Why you never learn from your investment mistakes

The curse of success, and why most mutual funds fail miserably

If you know only five things about investing, make it these

Why spotting bubbles is so much harder than you think

When smart investors do stupid things

The deep downside of home ownership

The biggest retirement myth ever told

He's rich, smart and old: Listen to him

Admit it: No one has any idea what's going on

Gold collapse: The start of something big?

BAD NEWS: EVERYONE IS RIGHT!

Twitter: The carnival barker of investing

Warning: Don't waste your capital being fooled by profit prophets

25 important things to remember as an investor

New paradigm for both drivers and car companies

Biases that make you a bad investor

Nine financial rules you should never forget

Gaining from financial destruction

How to read financial news

Housing: Partying like it's 1925

A rebuttal to student loan horror stories

CONGRATULATIONS: We just saved half a trillion dollars

End this crazy tax: It will boost the economy

Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



© 2013 The Motley Fool. Distributed by Universal Uclick for UFS

Quantcast