Say you are a chimp in the jungle. Swinging away through the trees you manage to collect a load of bananas. You can’t eat all the bananas today so you’re standing there with your arms full wondering what to do with them to save them for another day.
Another chimp comes along and offers to grow your supply of bananas for you. They show you a lovely hole in the ground ringed by palm leaves. All you have to do is drop your bananas into the hole says your chimp friend and leave it with him. Come back in a few years and I’ll have double the number of bananas for you says your friend. In the meantime the trees are ringing with the cries of chimps who have lost their bananas.
Now, what’s a chimp to do?
We human beings are just slightly more evolved chimp. Our brains process decisions including investing ones in an evolutionary hierarchy. First we have the reptilian or primal brain that takes a fight or flight response. The poor chimp when confronted with the banana decision just freezes in fear or runs away from the decision.
The next level is the limbic or emotional brain that views that banana decision as an overwhelming emotion of indecision and therefore anxiety. Lastly we have the logical or neo-cortex brain that should actually be processing the banana decision with all the wonderful powers of analysis our human brains have.
The poor chimp is so caught up in the fear and anxiety from the evolutionary brain that it rarely gets to using the power of the logical brain. Does any of this sound familiar to you in your investing life? Take a deep breath. Relax. You’re following your natural instincts. It’s just your brain working to protect you.
So how do you take your investing decisions out of inaction (primal brain) and anxiety (emotional brain) and move it into your superpower human logical brain? Entire books have been written about this subject, but here I propose for you:
The 4 C’s of Reducing Anxiety and Increasing Action
- CONTROL — decide to put yourself in charge of your investing life
2. CALM — be diversified, follow checklists
3. CONFIDENCE — do some investing yourself, start small and simple and build from there
4. CLARITY — — decide what kind of portfolio you want and learn what steps you need to achieve it
If you want to learn more about this topic I recommend the book The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy by James Montier.
You can score yourself against this framework by taking my scorecard, here. Have a good week, and don’t eat all your bananas!
Mallika Paulraj is the creator of The Superinvestar Framework which teaches investors how to make confident investment decisions. You can download your own copy of Ten Timeless Principles From The World’s Greatest Investors here. Her book How The Best Invest, which outlines the method, is available on Amazon.
Sign up to her weekly Four Minute Investing note via her website.