Why Inaction is an Investor's Best Friend - E58

Today's episode starts in Minnesota, during an experiment where young men were intentionally starved. They knew starvation would affect their body, but were shocked by how it affected their brains. We then travel to Johnsonburg, a small town in Pennsylvania, where an unexpected event involving deer and a newly constructed bridge made headlines. 

 

Did you know that mammal brains, including ours, share a common trait? It's called the amygdala, a remarkable part of our brain responsible for our fight or flight response. Just like the deer that instinctively jumped off the highway bypass, we too have an impulse that urges us to take drastic action when faced with fear. In the context of investing, this impulse often leads us to panic sell our portfolios during market downturns.

 

But is this fear-driven response always rational, or is it short-sighted? Fear, after all, is a survival mechanism designed to prompt us into action that alleviates the feeling of fear. However, when it comes to our investments, is it more crucial to survive negative outcomes than to chase maximum returns during favorable times?

 

Today, Jesse explains the psychology of investing including the answer to a popular question, should you have bonds in your investment portfolio? Only when the tide goes down do we discover who's been swimming naked. Don't let fear dictate your financial future, and instead learn why the true cost of investing is all psychological.

 

Mentions:

Malcolm Gladwell's podcast episode: 

https://www.pushkin.fm/podcasts/revisionist-history/the-department-of-physiological-hygiene

 

More of The Best Interest:

Check out the Best Interest Blog at bestinterest.blog

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The Best Interest Podcast is a personal podcast meant for educational and entertainment. It should not be taken as financial advice, and is not prescriptive of your financial situation.