I’m reading Your Money and Your Brain (How the new science of neuroeconomics can help make you rich) by Jason Zweig.

I’ve been a financial journalist since 1987, and nothing I’ve ever learned about investing has excited me more than the spectacular findings emerging from the study of “neuroeconomics”. Thanks to this newborn field “a hybrid of neuroscience, economics, and psychology” we can begin to understand what drives investing behavior not only on the theoretical or practical level, but as a basic biological function. These flashes of fundamental insight will enable you to see as never before what makes you tick as an investor. – Jason Zweig

In the very first chapter, Mr. Zweig writes about Harry M. Markowitz, winner of Nobel Prize in economics. He won the prize largely for the mathematical breakthrough that he had been incapable of applying to his own investing portfolio. Really, it’s by far easier to teach, than to do. No offense to teachers.

A few other interesting observations:

  • People who keep up with the news about their stocks earn lower returns than those who pay almost no attention.
  • “Professional” investors, on average, do not outperform “amateurs”.
  • The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.
  • After two repititions of a stimulus – like, say, a stock price that goes up one penny twice in a row – the human brain automatically, unconsciously, and uncontrollably expects a third repetions.
  • Expecting both good and bad events is often more intense than experiencing them.

This is just the beginning, and I’m already starting to understand, that to actively trade stocks successfully, one has to fight a lot of subconscious responses deep in the brain. Essentially, the task is to fight our human nature.

That’s what a lot of people like about Technical Analysis (TA). It removes all or most of emotions out of making decisions. I’m finding TA extremely useful. I’m much less emotional in my trading, but still impatient.

I’m concentrating on learning more about myself and about TA. Both help control impulses in trading and investing.

Will return to posting my P&L numbers at the end of May. It’s been a bit over a year since I started trading and investing, so a summary might be interesting. Oh, the suspense! Am I winning or losing?

Thinking about how our Net Worth should be split up, I came upon various suggestions as to the Asset Mix. Provided the world remains as it is now, one should have a balanced mix of Stocks, Bonds, Real Estate and Cash. All elements are optional, of course, but everyone agrees that 100% should not be kept in one basket.

Provided the world remains as it is now…
I have a fear that one fine day all of it can just go to hell. The market, the governments. I’m also afraid of WWIII. This – hopefully irrational – fear is preventing me from investing much into stock market. Of course, Reason tells me if there ever is a World War, all money will lose its value anyway, so why worry about it? The smart thing would be to live assuming that it’s all going to be alright.

I don’t know where this fear comes from. I’m 27 years old, I never had to live through a Depression or a War (not in my country, anyway). My Grand-Parents did, maybe I paid too much attention to their stories. I think I have the mindset of the survivors: Only hard cash is real to me. This is a huge mental block I have to break because, it’s actually costing us money: while it idly sits in the bank, it’s losing value.

To start investing, I mean really investing, that’s something I have to fight.

The accessibility of discount brokerages and ability to trade as easily as checking email are perfect circumstances for becoming an investment gambler. Even more reason to approach this carefully. Play money (that $3,500 I invested just for fun) was fine, and I think I made a few good choices. That’s encouraging, but to invest significant amounts there has to be some sort of rhyme and reason – a philosophy – behind it all.

I’m reading some good books on investing right now. By the way, can you tell good investment books from the bad? (Question from “The Only Investment Guide You’ll Ever Need”. I’m still reading my library copy but it’s a fantastic book that I’m going to buy). I’ll tread lightly at first.

Other highly recommended classic investment books I’m reading (aff. Amazon links):

Just look at my blog roll: Million Dollar this, Million Dollar that… Seems a lot of people are fixated on this round number. There must be a story behind it. Why a million dollars? (Seriously, if you know or have any ideas, please share). And how is $1ml different from $800,000? I think that most -average- people would find they actually need less than a million to feel comfortable and do what they please. There would most definitely be a threshold amount, after which their satisfaction with getting/making more would be diminished (I know, nothing new: Joe Dominguez and Vicki Robin covered it pretty well in “Your Money or Your Life”,I still think it’s worth discussing.)

I would be comfortable enough if we had a 5-year cushion and a paid off house (in Europe, which may be a bit more than a paid off house in Canada). That’s it, nothing more. I enjoy my work very much and don’t even dream of retiring yet, not by 35, not by 40. I would like to have kids while in my 30’s so that might be sort of a temporary retirement, but the cushion would supposedly take care of that.

BUT….I’m not sure that aiming relatively low in terms of desired Net Worth is the right strategy. After all, they say if you wish for something bad enough, you’ll eventually get it, because all your actions – even if subconsiously – will be aimed at that desired goal. I should make myself want more, brush aside all the modesty and wish for a million.

Once I re-condition myself, I’ll rename my blog “re: Million Dollars”.