Whole Brain Investing

When we think of investing it is easy to believe that the left brain functions (objective and analytical) dominate the right brain (creative and intuitive). In reality, both spheres of the brain are involved in making good decisions. All investors use intuition but it is often ignored or misunderstood. Our role is to help transpose some of this intuition into the disciplined process that we use for considering choices and consequences. We call it "whole brain" investing.

Most investors assume that the basis for good decisions can be found in data, information, track records, and statistics. The problem is that there is no such thing as a future fact. Facts only pertain to the past. Future "facts" are unknowable today. For the main, investors misunderstand some of the facts (or at least they are presented in an ambiguous manner). The emotional side of the brain is where most decisions are ultimately made but it lacks speech so that is where we have good or bad feelings about something.

Fear, Greed and Regret are among the most powerful emotions within the investing realm. It is imperative to understand that these emotions are real and can't be repressed. The objective is to turn them in your favor instead of against you. Fear, for example is the reason premium stock market returns exist.  Fear is a natural and essential human emotion but needs to be distinguished from anxiety which often causes the reactive behavior that can ruin portfolios. This Article from Vanguard highlights the dangers of emotion, and discusses ways to overcome the fear that an unpredictable market can create. (The Truth About Emotion)

A good example might be to contrast how we react to our home prices declining versus our investment portfolios declining. Most residential home prices peaked 4 or 5 years ago after a couple decades of steady increases. On average, home prices might be down 30-35% from the peak but most of us have stayed put, not reacting to this decline. When our investment portfolios suffer a similar temporary decline (as they do every 4^th or 5^th year on average), we want to rush for the exits. Our homes usually provide a reasonably good storehouse of value over time and our investments even better if we let them.

The "Dispassionate Discipline" that we provide to clients helps counter some of the dangerous aspects of emotions. We welcome your referrals of friends, family and colleagues. Don't keep us a secret.

  - James E. Wilson, CFP®