Your Brain on Investments

Why do our brains make it so hard to invest?

Photo: Raman Oza. Source:Pixabay

Thinking is hard work. Concentrating hard on a difficult task drains sugar from key parts of the brain. Usually, we use shortcuts to help us make decisions. We draw pictures; we remember past experiences; we tell ourselves stories to explain the data.

Most frequently, we engage in wishful thinking. We look for facts to confirm our prior assumptions, rather than letting the information speak for itself. After all, we’re told to take a positive outlook on life; positive people are more pleasant to be around; upbeat, hopeful entrepreneurs seem to accomplish more.

But wishful thinking is dangerous. Wanting something to be true won’t make it so. Markets aren’t always rational, but in the long run, they’re driven by financial information. Investors need to discipline themselves to rely on facts, not feelings, fantasies, or hunches when they put their money to work.

One way to do this is to stick to the numbers. Unlike people, numbers aren’t subject to emotions. Quantitative analysis is driven by data. And companies in the US release a lot of statistics. One manager assigns numbers to the companies in his portfolio, rather than looking at their names or ticker symbols. That way he doesn’t get attached to them when it comes time to sell. It’s a mistake to fall in love with a stock.

Thinking is hard work. That’s why it’s so rare. It’s data, not hopes or dreams, that lead to investment success.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-03-08T10:05:36+00:00March 8th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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