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By Christy Heady
Balancing my toddler on my left hip and cradling the phone receiver between my right ear and shoulder, I told him I couldn't take it anymore. We had to stop the bloodbath. I had already hung in there and wrestled for several months without giving into panic.My portfolio losses began to flirt with the seven-figure mark, and I was emotionally and financially almost wiped out. It was the Spring of 2009, and eight months earlier my broker had convinced me that my portfolio lacked exposure to the financial sector. That was thirty days before Lehman Brothers took everyone down -- siphoning my portfolio right along with it.
I'm not sure what hurt the most... losing almost all the money I had worked hard for, being a newly single mom with a son to raise by myself with no support, or the terse reply I got from my broker. I felt like the poster child for my own triple witching hour.
After I asked him how he was doing and told him the losses had already ripped the muscle away and were cutting into bone, I said it was time to make a change. His response?
“I've been on the phone all day, you have no idea how I feel.”
Rather than giving into armchair psychoanalysis, my brain kicked out of survival mode and into thoughts of determination. So I asked him the only question that came to me right after he shared an anecdote about an investment banking client who was suffering larger losses than mine.
“What are the small investors doing?”
He told me, and I was right -- it was time to make a change. So, I pruned one or two positions and stayed in the market while everyone else seemed to continue to speed toward cash. And then I moved my money to a different firm -- not because of the losses -- where I reconfigured my portfolio based on my new financial goals as a single mother with 80 percent less money than I had before and a young boy in tow.
Avoiding Bad Investment Behavior
Losing that much money was painful, but those were my circumstances. Problem was, I didn't yet know how to think in those terms.
And this is exactly one of the precepts neuroscientists who study investment behavior look at when separating and studying the brains and behavior of wealthy people and poor people.
If you were to study how wealthy people achieve their fortunes, you might discover they worked long hours, kept trying, didn't give up and made it big. But these neuroscientists found more by using MRI technology to trace the exact circuitry that your brain uses to make investment decisions.
They discovered that wealthy people often refrain from fight or flight behavior when market gyrations offer little assurance to remain fully invested. They actually do buy low and sell high -- much the opposite of how the investing public tends to chronically buy high and sell low or chase the hottest IPO.
The reason is because they have trained themselves to develop automatic, irreversible investing habits that are tailor-made for neutralizing their brain's worst liabilities while optimizing its greatest assets. Wealthy-minded people embrace that investing is not an endless race to beat the market. Rather, it's about controlling yourself at your own game.
Your Brain On Money
Your brain can solve ancient problems or generate emotional responses with lightning speed. But it's not so good at discerning long-term patterns or focusing on many factors at once.
Fast forward to today's overwhelming investment climate. When confronting potential risk like we have today, fear hits the center of your brain where the amygdala resides -- the almond-shaped knob of tissue -- and your brain acts like an alarm system.
Because the amygdala is so attuned to big changes, it is proven that a sudden drop in the market tends to be more upsetting than a longer, slower decline, even if it's greater in total. Why it's important to know this, for example, is it shows how the herd mentality for a flight to safety begins. And why you should not always follow the crowd. Wealthy people know this.
Brain scans show that when people follow the herd mentality, the part of the brain responsible for rational decision-making does not get activated. It is as if social pressure overpowers the analytical side of the brain. People go along with the herd, not because they want to, but because it hurts not to.
5 Ways to Rewire Your Brain for Wealth
The longer a pattern in investment decision making has been repeated, the more violently your brain responds when the pattern is broken. Here are a few ways to ease your mind...
#1. Since fear is an irresistible force for the brain, you must reduce your exposure to things that provoke panic. When you are full of fear, turn away from stock tickers and televised images of yelling traders. Simple, but it soothes the brain.
#2. If you start doing this, you'll be able to stay in balance and discern when you might be getting sucked into prediction addiction, which is where the thrill of the chase mixes in with imagining the riches you can have down the road. The brain is wired for anticipation -- which is the same place where greed comes from. Anticipation helps us look toward the future. But with a brain on fear and panic, a habit like that can lead you quickly astray.
#3. Make sure you know your own mind. Write down your own views about a particular position before you let other people tell you what to think.
#4. What if you are invested in a stock that goes straight up? Neuroscientists say the better an investment does for you, the more powerfully your brain will believe nothing could ever go wrong. If the stock rises say, 40 or more percent, study it again more closely. Ask what could go wrong. Do your research.
#5. Look at the long run. Your brain perceives that anything that repeats a few times is a trend. Be more concerned about where your portfolio will be 10 or 20 years down the road rather than what a stock did between 12:36 p.m. and 3:07 p.m. each Wednesday the past two and half years. Ask yourself -- how would a multi-million dollar portfolio holder handle today's market?
When you rewire your brain, put yourself on autopilot and think your way to a new money mindset. You can change your brain's perception by minimizing fear and greed. You will also be able to avoid overreacting to unnecessary market stimuli and instead focus on the work of long-term financial planning.
This way, when you do your research you will be less apt to misinterpret or let emotions warp your judgment.
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Today's Laugh Line
"People will now have to have health insurance. The same way every driver in California has car insurance." -- Jay Leno
(Got Jokes? Send your best jokes or funny videos to editor@tycoonresearch.com ... if it makes us laugh, you might just see it in The Tycoon Report some day!)
1892 - Showdown at Homestead steel plant
1892 - Showdown at Homestead steel plant
By the late 19th century, the workers at Andrew Carnegie's Homestead, Pa., plant had eked out a modicum of power. They won a key strike in 1889, and in the process became a potent unit of the Amalgamated Association of Iron and Steel Workers.
Still, these victories hardly erased the harsh working conditions at the Homestead mills. Nor did they mean that the Carnegie Co. was pleased with or readily recognized the union. Ever-mindful of Amalgamated's potentially deleterious impact on his profit margins, Andrew Carnegie looked to erode the power of the union.
In 1892, the company made its move against Amalgamated, though not with Carnegie at the helm: The steel baron had departed for a vacation in Scotland, leaving the task of smashing the union in the hands of his partner, Henry Clay Frick.
Frick took his mission all too seriously. After refusing to renew the company's contract with Amalgamated, he dug in for war -- erecting a three-mile-long steel wire fence around the plant. Frick also enlisted the aid of the Pinkerton Detective agency, which sent 300 men to Homestead to ensure the plant's transition to non-union workers.
Amalgamated's leaders responded in kind, lining up scores of workers, as well as a good chunk of the town, to wage battle against the plant. The showdown began in earnest on July 2, as Frick halted work at Homestead until the plant was staffed entirely by non-union workers. Three days later, the Homestead affair turned bloody, as the Pinkerton agents made their first appearance on the scene.
Attempting to reach the plant via the Monongahela River, the agents were met by Amalgamated's forces; the two sides engaged in a long and vicious battle that left nine strikers and seven agents dead. Despite the losses, Amalgamated's motley army was able to turn back the detectives.
Sensing that they were on the verge of disaster, officials for Carnegie enlisted the aid of the Pennsylvania government. And, on this day in 1892, the state sent a band of 7,000 troops to Homestead to "restore law and order."
The militia effectively squelched Amalgamated's strike: the troops helped the Carnegie restaff its plant with non-union workers and by September, the Carnegie company had resumed production. Later that November, the union conceded defeat and called off its strike; Carnegie responded by summarily firing and even blacklisting the strikers.
Source: www.history.com
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