i don’t think you invest the way you think you invest

Sometimes you read or hear something and for a long period of time you’re like Kubrick’s chimps around the monolith. You don’t know what it is, but it’s big and you can’t leave it alone. Bashing at it doesn’t help.

Usually its @interfluidity’s fault but in this case the problem is neurobiological. Epicurean Dealmaker linked to a quick interview with neurologist Robert Burton who thinks even brain researchers are still monkeys:

because we have an innate sense of agency and yet simultaneously believe that mental states must have preexisting physical causes, we are left debating free will versus determinism. If we didn’t have a sense of agency, I’m not sure that the free will question would even arise.

I take this to mean that we’re nowhere near the point where any researcher has enough perspective to understand something by using that same thing to analyze it.

Add to this the findings of another neuroscientist, David Eagleman, who wrote a book concluding that:

Brains are in the business of gathering information and steering behavior appropriately. It doesn’t matter whether consciousness is involved in the decision making. And most of the time it’s not. Whether we’re talking about dilated eyes, jealousy, attraction, the love of fatty foods, or the great idea you had last week, consciousness is the smallest player in the operations of the brain. …, most of what we do and think and feel is not under conscious control. Our brains run mostly on autopilot, and the conscious mind has little access to the giant and mysterious factory that runs below it.

I’m not thrilled with this.  I’ve lived my whole life thinking my conscious brain was the quarterback and the subconscious was a combination of reference library and haunted house.

In corporate terms, what it sounds like now is that what I consider “me” is actually a satellite office taking vague orders from an all-powerful HQ based in Liberia or an underground lair or somewhere else deeply foreign and unsettling.

Instead of corporate profits and legal compliance, the subconscious imperatives would include –  basically in this order – physical security, sustenance, acceptance at the highest rung of social status possible because it leads to widest mate selection.

Quick example and, although I cringe, it actually pretty much happened:

You’re in 10th grade. There’s a very cute but quiet girl who sits next to you in math class but you’re obsessed with a girl on the cheerleading squad. At some level, you even know the math class girl is not only cuter more physically attractive – rounder [redacted] and bigger [redacted]. But you want the cheerleader and you don’t know why.

Well, you think you don’t know but your subconscious sure as fuck does. Social status. Bragging rights.  These are head office initiatives, you’re just following orders.

No wonder everyone sucks at investing. Corporate policy is out of date by 20,000 years. What we convince ourselves is a good investing idea – buying Apple at $600 say – is mostly conforming to the HQ’s corporate initiative for acceptance and belonging. The 5 per cent chance of a ten bagger in junior mining is associated with dreams of wealth that will get us laid and provide security for our genes offspring. The bulls versus bears battle of the tape gets the same lights up the same dopamine pathway as protecting the tribe from an onrushing lion.

I’m not saying re-programming isn’t possible and biology is destiny. There are at least hundreds of professional investors who have hacked the mainframe and changed the code – or at least deactivated it. But Eagleman says that for most of us, our conscious minds don’t have security clearance for the vast majority of the calculations and policy decisions being made – in our own heads. How the fuck are we going to push out the old management?

22 thoughts on “i don’t think you invest the way you think you invest

  1. tangentstyle says:

    Great stuff. I always like that this blog asks different and important questions.

  2. kris says:

    Do an experiment on yourself.
    Focus on your brain every single moment of your day. Do it for many days.

    There will be hundreds and thousands of thoughts going in and out.

    Then whenever you have to make a decision, any decision, important or not important, let’s say to go to buy groceries or not, just check your brain very carefully. You will always have AT LEAST TWO OPPOSING THOUGHTS and you always and at any time have to MAKE A DECISION 1/10000000 of second some times, but you always and always and at anytime …make a decision.

    The only difference between humans and animal is FREE WILL. If we didn’t have free will, we’d all be animals.

    Forget about EXTERNAL psychologist and neurologist, you are your own neurologist. Just study yourself, as I did.

    That’s why St John starts with: “At the beginning there was the WORD (LOGOS)”
    That guy was the first neurologist on the record. At the beginning there was LOGIC, there was FREE WILL.

  3. [...] Look closely – you might be investing for social status rather than successful outcomes, the fault of your brain's primary shot caller.  (Interloping) [...]

  4. [...] Your unconscious brain is messing with your investing.  (Interloper) [...]

  5. In part, I invest to prove that I’m insightful enough to be worth befriending or refraining from assaulting either to benefit from my understanding in future or avoid potential harm from me as I could either already possess or collect threatening power over time. This mindset started during my elementary schooling where I could get affection from teachers that was untainted by violence, and then warped into the power aspect during the constant threat of violence of grade 5 through high school graduation.

    I comment to prove to myself that I exist.

    Both being false, just feedback into their insecurity loops.

    Truth is I don’t give a damn about money beyond being able to eat decent food, live in an environment peaceful enough to allow me to function well, and do something I enjoy with my time that seems to matter beyond myself. Since I doubt myself capable of believing anything truly matters, I can’t bring myself to care much about money except by a largely irrational conditioned fear of homelessness. The only way I’d likely become homeless is if the only people I cared about died or abandoned me, and then ending my own misery would be a simple matter not worth fearing.

  6. Alan Young says:

    Kick out the old management? What have you got to replace it with, junior?
    No, the old management system is very good at what it does: keep us alive. What you have to do instead is write a more limited job description for it, and then hire outside consultants to do outside-the-box stuff (like trading).

  7. [...] What we convince ourselves is a good investing idea is mostly conforming to the need for acceptance and belonging. The bulls versus bears battle of the tape gets the same lights up the same dopamine pathway as protecting the tribe from an onrushing lion. Seriously, read the whole thing here. [...]

  8. Watch 4 episodes of Fringe per day, avoid hypocrites, and eat well. Good Trading!

  9. [...] I Don’t Think You Invest the Way You Think You Invest (Interloper) • Japan’s currency war has just begun (Macrobusiness) see also QE on steroids in Japan (FT [...]

  10. Derektheunder says:

    Dan, you just described my own thought process, to a tee.

  11. wallyfurthermore says:

    You are an animal with a nascent, minimal sense of consciousness. Accept that, put in your few years here and go away. That’s life.

  12. [...] I Don’t Think You Invest the Way You Think You Invest (Interloper) • Japan’s currency war has just begun (Macrobusiness) see also QE on steroids in Japan (FT [...]

  13. [...] Interloper has a nice treatment on the lizard brain today.  I think I remember that cheerleader from high school also. [...]

  14. palimpsest says:

    I don’t think that really successful investors have “hacked” or “rewired” their brains. Instead, I think they are just born seeing the world differently. If those differences fit the markets, they will prosper. It helps, I think to be a reasonably intelligent misfit who enjoys seeing the rest of the class decide X is the answer and then arguing for Y, for going right when everyone else goes left. That’s why I bought some JCP today.

  15. The answers to your questions are in your descriptions. You now have an awareness of your situation, and you have examples of how it works. Continue to develop these – more examples (and more models) – into the meta level observations and thinking it is. Act more with these when you can. Use it to address your perceived weaknesses. People forget that Warren Buffett left NYC because it was too distracting. It takes practice. You will make mistakes – which are new examples. A biological disposition to embrace hard work will help.

    Also, consider some other metaphors and stories. “An all-powerful HQ/underground lair somewhere else deeply foreign and unsettling” is full of agency and just one possibility. There are other metaphors of mind. If you are entranced by neuroscience look at

  16. [...] I don’t think you invest the way you think you invest – interloper [...]

  17. [...] It happened while I was reading this interesting post about your subconscious brain, and how investing decisions, for most people, are made to secure their social status rather than for good financial reasons – I don’t think you invest the way you think you invest. [...]

  18. curvededge says:

    When betting on the outcome of a beauty contest, we don’t bet on who we think is best looking but who we think everyone else finds most attractive.

  19. aravishiva says:

    great article, thanks.
    latestaccounting.com

  20. […] I Don’t Think You Invest the Way You Think You Invest (Interloper) […]

  21. Lee says:

    I think there are people who are born to be investors. Like it is their gift, their talent. And they can somehow pass it to their children and grandchildren. While other people who weren’t born with this talent, given the right guidance, could just learn how to do it.

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