Photo credit: Tom Olliver
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My new Saturday series: “Psychology for Better Investing”

People were recently asked to judge whether three-dimensional objects were the same or different. Sometimes the folks being tested made these choices in isolation. Other times, they first saw the responses of either four “peers” or four computers. (The “peers” were, in fact, colluding with the researchers conducting the study.) When people made their own choices, they were right 84% of the time. When all four computers gave the wrong answer, people’s accuracy dropped to 68%. But when the peer group all made the wrong choice, the individuals being tested chose correctly just 59% of the time. Brain scans showed that when people followed along with the peer group, activation in parts of their frontal cortex decreased, as if social pressure was somehow overpowering the reflective brain. —– Your Money and Your Brain, Jason Zweig

This is not to say that all decisions we make are more reliable if made without external input. However it’s important to realize that you shouldn’t rely on information you find at Yahoo! Message boards or at Stockhouse, or even in the Canadian Business magazine. They are good sources for generating ideas, but the decision on buying stocks should be made by investor alone based on “due diligence”, technical or fundamental (whatever you prefer).

It’s interesting that physiologically “it hurts less to go with the herd, than to make your own decision“. This is in part a defensive mechanism, because should the investment go bad, you’ll have the herd to blame.

I’m guilty of picking up tips and opinions on anonymous blogs and stock boards. Guess what, with other’s ideas I lose money 80% of the time, but with the ones I found on my own I’m profitable 80% of the time.