Mental Model: The Amygdala Hijack

the amygdala hijack 2I was having a great back and forth conversation with Dividend Growth Investor (DGI) on the recent article on temperament. We went from the comment section into long and detailed emails on our position surrounding investors’ temperament and our opinions on why or why not the “average” investor might be fairly terrible investors, from a total returns perspective. Half way through the tome of an email reply I had written back, I started getting into the basics of the brain. When gathering mental models, it’s not enough just to read and understand finance, business, and accounting – ultimately, you need to have a base level understanding of all the major ideas in every field, from biology and physics to psychology and anthropology. The amygdala hijack – term coined by Daniel Goleman in his book Emotional Intelligence – is a blend of ideas arising out of biology, neuroscience, and psychology. For me, the concept of the amygdala hijack really illuminates why investors might typically buy high and sell low, leading to abysmal returns.

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Mental Model: Temperament

Outstanding Financial Pornography CNNWhen it comes to investing, the adage that temperament trumps raw intelligence is most definitely true. Behavioral economics dispels the dated notion that all investors are cold, logical, rational actors seeking to maximize investment gains. In theory, we might all believe we are cold, logical, rational actors seeking to maximize investment gains. But in reality, theory – especially those surrounding the social sciences – often does not play out so neatly. I first began learning about finance 4 years ago. That continues to this day and will likely never stop. I first started actively acquiring fractional shares of attractive businesses 2 years ago, with the process accelerating a year ago as the student loans got paid off. Here are some thoughts on temperament I’ve gleaned over the years.

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