Your Money and Your Brain

by Jason Zweig

Drawing on the latest scientific research, Jason Zweig shows what happens in your brain when you think about money and tells investors how to take practical, simple steps to avoid common mistakes and become more successful.

What happens inside our brains when we think about money? Quite a lot, actually, and some of it isn’t good for our financial health. In Your Money and Your Brain , Jason Zweig explains why smart people make stupid financial decisions—and what they can do to avoid these mistakes. Zweig, a veteran financial journalist, draws on the latest research in neuroeconomics, a fascinating new discipline that combines psychology, neuroscience, and economics to better understand financial decision making. He shows why we often misunderstand risk and why we tend to be overconfident about our investment decisions. Your Money and Your Brain offers some radical new insights into investing and shows investors how to take control of the battlefield between reason and emotion.

Your Money and Your Brain is as entertaining as it is enlightening. In the course of his research, Zweig visited leading neuroscience laboratories and subjected himself to numerous experiments. He blends anecdotes from these experiences with stories about investing mistakes, including confessions of stupidity from some highly successful people. Then he draws lessons and offers original practical steps that investors can take to make wiser decisions.

Anyone who has ever looked back on a financial decision and said, “How could I have been so stupid?” will benefit from reading this book.

Genres: Finance, Psychology, Money, Nonfiction, Personal Finance, Business, Economics

352 pages, Paperback

First published August 1, 2007

About the author

Jason Zweig is an investing and personal finance columnist for The Wall Street Journal.

Reviews

[Felicity · Rating 5 out of 5]

Must read for every investor.

Chapter One: Neuroeconomics
“One of the themes of this book is that our investing brains often drive us to do things that make no logical sense- make perfect emotional sense.” 3
“The investing brain is far from the consistent, efficient, logical device that we like to pretend it is. Even Nobel Prize winners fail to behave as their own economic theories say they should.”5
“And it’s not as if emotion is the enemy and reason is the ally of good financial decisions. People who have suffered head injuries that prevent them from engaging the emotional circuitry in their brains can be terrible investors. Pure rationality with no feelings can be as bad for your portfolio a sheer emotion unchecked by reason. Neuroeconomics shows that you will get the best results when you harness your emotions, not when you strangle them.”5
“Knowing who you are as an investor can make you a fortune- or save you one.” 6
Chapter Two: Thinking and Feeling
-You think with the reflexive system (emotional) and the reflective system (analytical). Reflexive is impulsive and reflective takes longer.
-Trust your gut, know when reflexive thinking will rule your thinking process, ask another question to dig deeper into your assumptions, don’t just prove-try to disprove, conquer your senses with common sense, only fools invest without rules, sleep on important decisions, do your homework ahead of time so you are ready to buy when a stock drops, stocks have prices and businesses have values (prices change thousands of time a day but the value of the business takes a lot long to appreciate or depreciate- as the business value increases the price will naturally increase).
- “Buffet says, “My first question, and the last question, would be, ‘Do I understand the business?’ And by understand it, I mean have a reasonably good idea of what it will look like in five or ten years from an economic standpoint.” If you aren’t comfortable answering that basic question, you shouldn’t buy the stock.”32
Chapter Three: Greed
-Expecting a financial gain is more rewarding and exciting than actually receiving one. 35
-Once you’ve experienced expecting a large financial gain (winning the lottery) once, you chase it again your whole life. You will do crazy things to achieve this feeling again.
-Our brains do this so that we will continue to chase long term goals. The reward we get from anticipation helps gives us the patience and perseverance it takes to achieve long term goals.
-“Jacob Horner is incapable of imagining future pleasures and thus is paralyzed whenever he confronts a choice.”40
-“Choosing is existence: to the extent that you don’t choose, you don’t exist.”
- A common saying “Buy on the rumor, sell on the news” works because the rumor is the anticipation which rewards the brain so people buy. When investors finally get the good news they want, it’s not as good as they thought it would be so they sell. 42
-Your memory is better when you are expecting a financial gain. This is the reason you remember the risky bets you took that paid off, rather than the ones that didn’t.
-Your reflexive system measures anticipation and your reflective system measures probability. That’s why we tend to consider anticipation before the chance of it happening.
-Your anticipation circuitry doesn’t evaluate potential gains in isolation. We assess our potential outcomes not just against what did happen, but what could have happened.47
-Getting a grip on your greed: 1. There are no sure things on wall street. Be on your guard against those luring you in with excitement over potential gain. 2. Put the money you will use on risky investments in totally different account and don’t add any money to it no matter what. 3. Control the cues that could influence you to act impulsively. 4.Think twice
Chapter Four: Prediction
“All these predictions fall prey to the same two problems: First, they assume that whatever has been happening is the only thing that could have happened. Second, they rely too heavily on the short-term past to determine the long-term future.”
-Three reasons investors who do the most homework don’t necessarily do the best: 1. The market is usually right. 2. It takes money to move money. 3. Randomness rules.
-It is human nature to search for patterns, however, we tend to assume there are patterns in investing where order and patterns do not lie.
-“what we’ve learned about prediction might make you wonder whether investing is a fool’s game or we’re all doomed to destroy our wealth with our own idiocy.
-How to overcome your brain’s tendency to automatically predict: 1. Control the controllable: your expectations, your risk, your readiness, your expenses, your commissions, your taxes, your own behavior 2. Stop predicting and start restricting: invest on a schedule, not when you think the market will move. 3. Ask for evidence before believing “experts” predictions. 4. Practice before putting money behind it. 5. FACE UP TO BASE RATES 6. Correlation is not causation 7. Take a break 8. Don’t obsess (stop checking your stocks so often)
(thought: this book has a ton of information and makes too many points. some could be omitted)
Chapter Five: Confidence
-Familiarity becomes synonymous with safety. People become overconfident in what they’re familiar with. We feel better when we are around the familiar. We like things the more we are exposed to them.
-A winning streak makes you feel like you’re playing with house money. Streaks make the future feel more predictable. Streaks make the investor feel like luck is on their side over random chance. 107
“Because being on a roll is so thrilling, it generally takes at least two scaldings before even so-called experts can begin to learn not to touch a “market bubble””. People turn manic when they’re in a winning streak.
-frequent traders tend to underperform less frequent traders by about 7 points a year. They tend to be overconfident.
“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know. An investor needs to do very few things right as long as he or she avoids big mistakes.” – Warren Buffet 119
How to correct your confidence: Diversifying allows you to not have to be confident in one sector; after evaluating a stock cut the high and low end of the range down by 25% to account for overconfidence; keep a record of what was on your mind when you made predictions so you can see if it went up for the reason you thought it would; track portfolios of stocks you don’t own (thought about buying but didn’t, stocks you’ve sold, etc); compare your earnings and expected earnings to base lines; write down mistakes and lessons learned from them; don’t keep more than 10% in your own company’s stock; keep asking why to every answer- people who don’t know what they’re talking about usually can’t get past the second why.
Chapter Six: Risk
-Risk tolerance is not fixed; it changes with your moods/emotions.
-How information is framed determines your perspective/feelings about its risk.
-Interaction between thinking and feeling creates framing.
-Framing probability as X out of X people instead of a percentage sounds more like it would occur.
-People who can’t afford to take large risks usually are more likely to because they need the possible gain more than richer individuals. 146
How to manage your risk: 1. Don’t buy/sell spur of moment because your risk level can change based on your emotions. 2. Step outside yourself (would you advise your mom to do this) 3. Write yourself an investment policy (what youre seeking to do accomplish with your money and how you will get there. Long term objestices and constraints along the way 4. Reframe situations 5. Try to prove yourself wrong 6. Instead of thinking in terms of risk, think in terms of goals. What do you need to do or avoid doing to achieve these goals?
Chapter Seven: Fear
-Dread and knowability determine how scary/risky something is. Dread is determined by how controllable, vivid, or catastrophic an event may be. Knowability is determined by how immediate, specific, or certain the consequences may be.
-Your amygdala helps you overreact to anything that is new, changing, or out of place making you feel afraid before you even realize you’re afraid.
-When you don’t conform your amygdala lights up.
-How to keep cool when facing your fears: 1. Get it off your mind for a little bit 2. Use your words to describe investment decisions as this dims the amygdala’s reaction 3. Track your feelings 4. Get away from the herd (write down your investment ideas/reasons before encountering herd; run group consensus by trusted person not in group;
Chapter Eight: Surprise
-Financial markets humiliate anyone who thinks they know what’s coming, so expect to be surprised.
-How to embrace the unexpected: 1. Whenever you’re tempted to do what everyone else is doing, don’t. 2. High hopes cause big trouble 3. Track why you were surprised 4. Focus on how the surprise affects the company, not the stock price, in the long run.
Chapter Nine: Regret
-Your instincts tell you that you will feel more regret over a mistake of action rather than a mistake of inaction.
-Regret is also based on what you missed out on getting what you got.
-No matter what you do, something else can seem like what you should have done.
-regression to the means: a term that means that progress will eventually be hindered by naturally staying towards the mean. This means stocks that go up will always come down eventually, even if only a little.
-On average, half of stocks will do better than the market and half will do worse, but with fees and taxes, your odds of outperformance drop to one in three. Choosing stocks on basis of past returns along will make you end up wrong about two thirds of the time. Intelligent investors don’t make that mistake.
-Your insula puts you in touch with what your body is doing. Main center for evaluating negative emotions.
-“Investors may hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting. People who avoid actions they think might hurt later often are buying emotional insurance that they do not actually need.
Lessons to overcome investing regret: 1. Talk it out with someone. 2. Having rules gives you a reason to fall back on when you feel regret 3. Get second opinions 4. Find silver lining when you sell (tax cuts) 5. Only sell because there’s something wrong with the business, not because the price is low. 6. Implement automatic investing 7. Automatically rebalance your asset allocation
Chapter 10: Happiness
-we misjudge what we want, how we will feel when we get it, and how long that feeling will last
-you usually see the past as being better than it truly was.
-money spent on acquisitions is more likely to be thought of as a mistake as time passed. Money spent on experiences are more likely to be thought of as better as time passes.
-whether or not you’re happy with what you have partly depends on what people around you have
-the happier you are the more money, the longer life, and the healthier you will probably be
-Being lucky is partly a skill- you can be in lucky situations but you have to initiate and do make the most out of them for them to be good for the most part
-How to be lucky: 1. Don’t give up 2. Look outward: curious, observant, engaging 3. Look on the bright side 4.
-How to be happier: 1. Meditate/breath 2. Don’t watch tv 3. Combine a dreaded activity with hanging out with friends 4. Exercise 5. Celebrate/throw a party when in a bad mood, not just good ones 6. End experiences on a high note to remember them as more positive 7. Surprise someone 8. Learn something new 9. Accentuate the positive 10. Make your own luck: try new things, notice the world around you 11. Don’t procrastinate 12. Experiences are better than materials 13.

[Lokesh · Rating 4 out of 5]

4.5 really. It is long and repetitive in parts, but very insightful.

Here are some of my notes.

When your investments are crashing, one option is to sell at loss to avoid further loss and to write off the loss for tax benefit. Obviously this does not mean that you sell in panic.

Neither pure emotion nor pure logic is good for investing. A balance between the two will steer an investor in the right direction.

After two repetitions of a stock jumping, human mind automatically thinks that there will be a third one. That is, we always expect patterns. Either patterns in that something will happen or something will not happen. In reality, there are no patterns in random events. However, over the long term there is an expected value to the random events. But … stock market is not even random - so that makes this whole thing a lot more complex.

“This company makes good products or provides great service. It’s logical that it should do well in the long run. I have a feeling it will do well.” This kind of approach to investing is no better than investing in a stock that you have no idea about.

Two parts of the brain - reflexive and reflective
Your brain consumes a lot of energy. Also, the reflective brain can focus only on one task at a time. Thus, by design, your reflexive brain is in control most of the times - Filtering out 99.9% of stimuli, REACTING (not responding) to things that need an urgent action and passing on only the highly important (not urgent) tasks to the reflective brain.

How to balance the two parts:
- know when reflexive system will take over. When the market is flat, you can do the analysis. But when the market is doing tremendously well or bad, that’s when your judgement can get clouded and you can fall victim to your reflexive system. When you start thinking in terms of “this industry is doing well, let me invest in this sector”, that’s when you need to be careful - because ideally you need to do a thorough analysis of a sector to draw the right conclusion.

- past performance of a stock is not an indicator of future trend

- TRACK THE PERFORMANCE OF YOUR INVESTMENT EVERY SINGLE QUARTER IN AN EXCEL SHEET

We get way more pleasure from anticipation than the actual act. It’s the biology’s way of giving us the ability to do plan for the long term because we can anticipate bigger gains that way. However, the dark side is this often makes us anticipate things to be better than they really turn out to be.

- humans always tend to find patterns in data that does not have any pattern or has too complex patterns. Similarly we tend to think that we can predict the market. BUT WE CANNOT. even the “experts” cannot.

Be realistic and do not expect to earn more than an average 10% annual return.

INVEST A LITTLE EVERY SINGLE MONTH - never too much or too less.

Gambler’s fallacy - i head shows up in consecutive 10 coin tosses, the probability of heads in the eleventh toss is very low. In reality, that probability is always 50%.

It’s human tendency to consider oneself above average or better than most at almost every task. But one needs to ask oneself “AM I REALLY GOOD AT THIS TASK?”

Overconfidence and unfounded optimism is crucial for us to not feel depressed or to take risks or to try the challenging tasks. However, too much of it can be dangerous.


Enron employees had invested 60% of their retirement savings in the company stock and they lost all of it during bankruptcy. Since one already works at the company, one should not invest more than 10% of retirement savings in there. DIVERSIFY.

If you think that your money is safe when invested in your own company, remember that all the Enron employees also felt the same.

Investing in companies that you are familiar with does not make them any safer than other unknown companies. Part of the reason why advertising works is that mere repeated exposure to a thing creates a feeling of “known” and hence “positive” in our minds, regardless of the actual quality of it.

Lucky hot streaks on few occasions first make you feel more secure about how well the market is doing and second make you more confident about your skills. I’m both cases, you are getting fooled.

FRAMING IS CRUCIAL. when you want to scare someone into doing something then frame the sentence in negative outcomes. On the other hand, if you want to render an impression of safety, frame sentences using positives. It is crucial to use positive sentences when you want to give someone constructive feedback or highlight a better way doing something. Most likely you want to use positive sentences so that people themselves make the right logical choice. This is because by framing negatively, the fear centers of the brain are activated and people are more likely to decide emotionally; while positive sentences allow people to continue to think logically and clearly - thus allowing them to make the right choice.

Don’t make decision in the spur of the moment - be it investing or any other activity. Always sleep on it for at least a day.

DO NIT FOLLOW THE CROWD. Most people do not know what they are doing and are just following each other.

Even smallest of negative surprises can cause heavy damage to the stock market value of a company, while a positive surprise does not give the same boost. But remember, such negative surprises are only temporary for businesses with moat and thus provide a good opportunity to buy at a bargain.

Interesting thing to check: which companies do not give an earnings guidance, they probably do not waste energy in simply meeting that guidance.

COMMISSION VS OMMISSION
when you take an action (commit) that carries a risk of causing loss, people are less likely to take action. Further, if you lose money once by taking an action, in future you will be more scared to try it.
On the other hand, when you do nothing (omit) then you don’t have that regret of potentially loosing out on a big gain, because you are focused on avoiding the loss.
IN SHORT THERE IS COMFORT IN INACTION COMPARED TO ACTING AND LATER REALIZING THAT THE ACTION LED TO A LOSS, even though in the long term inaction leads to lesser returns.
Psychologically, a loss of X hurts more when it is the result of you taking an action vs not taking any action, even when technically the loss is the same in the two cases.

Counter factual thinking. Instead of focusing on the objective reality of whether you are better off compared to where you started, your mind can make you regret if you find out you missed making it big by a small margin. Eg silver medalists are not as happy as bronze medalists. Stock market is the breeding ground for such “if only” style regretful counterfactual thinking.


In the Modern times money has become so critical for our survival that all our biological machinery reacts to money matters identical to how it would react to matters related to our primal instincts like food, water, sex, etc.

Discuss your investment strategy and questions with folks you trust.

DECISION TO HOKD ON TO OR SELL A STOCK SHOULD PURELY BE DETERMINED BY WHAT YOU THINK IT IS WORTH, AND NOT BY HOW MUCH YOU BOUGHT IT FOR. If you think the current price is lower than the real worth (will go up) you should keep it. If the price is higher than the worth (will go down) you should sell it.

By rebalancing your portfolio regularly, you will sell the securities that have soared the most and buy the ones that have dropped the most. Over the long term this aligns with the wise idea of “buy low, sell high”. MANY PLATFORM PROVIDE AUTOMATIC REBALANCING - SIGN UP FOR IT.


ULTIMATE TRUTH - more money cannot buy happiness in life. Rather, if we focus on being happy and enjoy what we are doing we may end up richer in addition to being happier.

We always tend to over estimate the magnitude of the impact an event can have on our lives - be it positive or negative.

When you are chasing a goal to become something, do remember to also imagine what it would mean to being that, to walk in those shoes. You don’t want to end like the dog who has chased down the car but does not know what to do next.

Often we find out that what we thought we wanted before we got it is no longer what we really want once we have it.

You can’t always want what you get.

In ancient times “comparison complex” was critical for survival - you would look at the alpha males and learn from them on how to hunt and gather resources better. Even in modern times, in small quantities, the comparison complex is good - it keeps you motivated (eg things like cleaning the house before a guest arrives). However constant comparison or trying to win the rat race is only going to cause you more unhappiness.

We as humans are programmed to want to be higher up the hierarchy in our species, just like animals. In modern world, we most often try to compete with out immediate peers at work or outside. You don’t get jealous of a person in another country or state or city whom you don’t know about or cannot relate to.

Money cannot buy happiness but happiness can get you money. If you are happy and invest in activities that make you genuinely happy, you will do better in all aspects of life and will in turn make more money by doing well at work, investing wisely and also spending mindfully.

Final TODOs:
- track your total portfolio using a tool
- Hope for the best but expect the worst. Diversity.
- No single stock should hold more than 10% of your money

[Jennifer · Rating 4 out of 5]

4.5 stars. A fascinating survey of how the most primitive recesses of our brains drive so many of our investment decisions. This book explores why (for instance), despite the fact that everyone knows we should "buy low and sell high," so few people are actually able to stick to that rule. When stocks collapse 25% in one day, most people panic and sell their stocks rather than buying MORE stocks (which are ON SALE!) the next day. On the other hand, when the stock market soars to new heights, most people feel compelled to BUY despite the fact that in such a climate, securities are more EXPENSIVE than they have ever been. The human brain is hard-wired for us to react in exactly this way, despite the fact that we can logically recognize that these are foolish investment choices.

Money represents the means of maintaining life and sustaining us as organisms in the world and therefore it triggers highly emotional parts of our brains. Losing money can feel like we are standing on the crumbling edge of a cliff, pushing all logical decision making out the window. This fascinating book draws on research from neurology, psychology, and economics to shed light on the tension between reason and emotion in our investment decisions. The author walks the reader through practical steps to help investors make more mindful decisions in light of our all too human weaknesses.

[ManOfLaBook.com · Rating 5 out of 5]

This behavioral finance book came recommended to me and I’m glad it did.

The book, in a very non-technical language, touches on how the body reacts physically and mentally to the changing stock market. The author explains how the brain works when faced with pleasant events (stocks going up) and unpleasant events (stocks going down) and when faced with peer pressure or an important decision. After the explanation, the book tells you simple techniques to avoid or circumvent these issues as well as a great checklist to go through before gambling in the stock market.

I do have a “play account” and aside from my retirement account which I opened to learn about the stock market. This book has helped me focus on my actions instead of actions of others as well as make the stock market gambling a bit more interesting (using my play account only). Maybe in a year or so I’ll be brave enough to stick a few more dollars, but meanwhile – a fake portfolio – here I come.

[Akhil Jain · Rating 5 out of 5]

My fav quotes (not a review):
-Page 5 |
"My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities."
-Page 5 |
"An expert in linear programming, he knew that “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.” The researcher’s name was Harry M. Markowitz. Several years earlier, he had written an article called “Portfolio Selection” for the Journal of Finance showing exactly how to calculate the tradeoff between risk and return. In 1990, Markowitz shared the Nobel Prize in economics, largely for the mathematical breakthrough that he had been incapable of applying to his own portfolio."
-Page 7 |
“If you don’t know who you are,” quipped the investment writer “Adam Smith” in his classic book The Money Game, then Wall Street “is an expensive place to find out.”
-Page 8 |
"financial losses are processed in the same areas of the brain that respond to mortal danger;"
-Page 21 |
"Our reflective brains know that the fruit salad is better for our health, but our reflexive brains crave that gooey, fattening chocolate cake."
-Page 21 |
"Then they were offered the choice of either a fruit salad or a chocolate cake. When the number the students memorized was seven digits long, 63% of them chose the cake. When the number they were asked to remember had just two digits, however, 59% opted for the fruit salad. Our reflective brains know that the fruit salad is better for our health, but our reflexive brains crave that gooey, fattening chocolate cake. If the reflective brain is busy figuring something else out—like trying to remember a seven-digit number—then impulse can easily prevail."
-Page 26 |
"That’s because the investors who fixated on price changes traded"
-Page 49 |
"Once you learn that a given gamble could make money, you will remember those circumstances—and the thrill of expecting the jackpot—far better and much longer than you will recall the bets that never paid off."
-Page 52 |
"“You’re very likely to have some vivid imagery of piles of money and fantasies about how you’ll spend it. But your brain isn’t designed to form mental imagery of a probability."
-Page 57 |
"Psychologist Howard Rachlin of the State University of New York at Stony Brook has shown that one of the best first steps toward quitting tobacco is to try smoking the same number of cigarettes each day—and that offers a hint for us. Fewer opportunities for greed, plus less variability in the amount of satisfaction you can look forward to, will equal more self-control."
-Page 64 |
"Our knack for perceiving order even where there isn’t any is what the astronomer Carl Sagan called the “characteristic conceit of our species,” and what others have called pareidolia,"
-Page 74 |
"Lay an MRI brain scan of a cocaine addict next to one of somebody who thinks he’s about to make money, and the patterns of neurons firing in the two images are “virtually right on top of each other,” says Breiter. “You can’t get a better bull’s-eye hit than those two.”"
-Page 74 |
"Once you’ve learned what kind of cue can signal a reward, your dopamine neurons no longer fire up in response to the gain itself; instead, they will be triggered by the appearance of the cue."
-Page 77 |
"If you had to wait around for things to consciously feel good, then you would never behave right and you would die.”"
-Page 86 |
"J. Scott Armstrong, a marketing professor at the Wharton School of Business, likes to cite what he calls “the seer-sucker theory: for every seer there is a sucker.”"
-Page 181
"Some of the viewers were asked how fast the cars were going when “they hit each other.” Others were asked how fast the cars were going when “they smashed into each other.” Even though both groups saw the same videos, the people who were prompted by the words “smashed into” estimated that the cars were going 19% faster. “Hit” may not sound very scary, but “smashed into” does. That evidently switches on the amygdala, splashing emotion back onto your memory and changing your perceptions of the past."
-Page 192
"The players all turned to look at the comedian, a distraction that allowed their minds to tune out the stress and win the game in the nick of time. When you feel overwhelmed by a risk, create a John Candy moment. To break your anxiety, go for a walk, hit the gym, call a friend, play with your kids."
-Page 215
"The word invest literally means to clothe yourself in something."

[Max · Rating 3 out of 5]

I had pretty high expectations for this book and ultimately those expectations were not met. It's a fine read and it contains plenty of useful information and tips. However it also contains a lot of lackluster analysis in my opinion (and at least one instance of downright invalid analysis, which lessened the level of trust I had for Zweig's other claims).

Zweig brings forth a ton of interesting studies relating to psychology and/or finances, he's definitely done his homework in that regard. But he didn't seem to care much for evaluating or analyzing those studies. He typically uses a study's findings to prove a broad point, sometimes making large leaps between evidence and conclusion. When citing psychological studies to support a thesis, I'd expect at least some exploration or mention of why those studies' findings may or may not be sufficient, applicable, or consistent. I felt Zweig's level of effort in that area was near zero. For a book that quotes Daniel Kahneman so frequently, it struck me as an alarming level of confirmation bias.

It's still an informational read and I think I would still recommend it to people who are interested in personal finance and understanding how your brain/psyche is involved in the way you think about finances. As mentioned before, Zweig offers a surplus helpful and actionable tips -- the most redeeming quality for the aforementioned shortfalls.

[John · Rating 4 out of 5]

The emotional response of the reflexive brain overwhelms the analytical powers of the reflective brain. One can avert portfolio paralysis by investing gradually and automatically over time with a $-cost averaging plan.

"Found money" can do funny things to your head.

http://www.google.com/url?sa=t&rc...

[Thomas · Rating 4 out of 5]

How the brain reacts to stimulus as it relates to gains, gambles, losses, framing, etc. Has helped me obsess less about the stock market.

[Jørgen Astrup · Rating 4 out of 5]

Good writer, but not a lot of new stuff. a good read from 0-190 pages. dident enjoy the rest that much. Happiness And regret part felt a bit like filling pages so the book was longer

[InvestingByTheBooks.com · Rating 5 out of 5]

“The investor's chief problem – and even his worst enemy – is likely to be himself.” Many of the readers are probably familiar with this profound quote from Benjamin Graham in the Intelligent Investor. In Your Money & Your Brain, Jason Zweig presents many of the reasons to why the sentence by Benjamin Graham is true. The book is aimed at helping the reader to profit for the long term both in terms of wealth and also living a more meaningful life by understanding the psychological reasons for our actions.

Zweig has been working as a financial journalist for more than 30 years. More than the last 20 years have been spent with the Wall Street Journal where he has been writing weekly columns. His columns are most often focused on subjects such as financial history, behavioral finance and neuroeconomics. Zweig is passionate about helping people to avoid bad investment decisions which includes criticizing bad practices in the financial market.

For value investors Zweig is probably most known for having updated the latest edition of the Intelligent Investor. The author describes how his interest for neuroeconomics started in 1998 when he picked up a newspaper at an airport which included an article about neuroscience. The subject led Zweig to insights he couldn't have dreamed of acquiring simply by reading typical investment material highlighting the importance of learning from multiple disciplines.

Your Money & Your Brain can be used as a source to gain understanding about why humans react as they do and why. The human brain is ancient and is still optimized for the hunter gatherer society where humans have spent most of their existence. Many readers may be aware of some of the concepts in the book, having already read books such as Daniel Kahneman's Thinking Fast and Slow.

The book starts with an introduction to neuroeconomics and how the brain works. The reader is then presented with areas and feelings that have huge impact on investors and other decision makers. Some of these are fear, greed, confidence and regret. In every chapter, Zweig describes the neurological background to the feelings and also presents recommendations on how to live and act as an investor in order to avoid them. He presents which part of the brain is causing which feeling and introduces the reader to further studies about the brain. He backs up all the material with references to scientific studies.

Both this book and Zweig's The little book about safe markets, published in 2010, is directed to a broad mass of people and to personal finance readers, making some of the material a bit basic for the experienced investor. The benefit of this is that the language is really easy to grasp. Zweig is a terrific writer in how he is making a difficult topic feel simple.

Having read a lot of books about behavioral economics and neuroeconomics I have gotten the impression that the most important thing is to set up habits and routines to avoid ending up in certain situations, instead of trying to overcome them. That impression only got stronger having read this book. Zweig steer his readers in a very clever way as he is ending every chapter with suggestions of habits that could help the reader avoid getting tricked.

Myself, I have already started to introduce some of the habits in my daily life which I see as a great compliment to the author. As many other investors, I have felt the pain of having fooled myself and am working hard to avoid it. Your Money & Your Brain is of great aid in that regard.

[Benedict Gnaniah]

I went to the library, just wanted to return an scram. While on the counter this book seemed to plead with me, well literally, to take me home. I said okay let me try you, I like this neuro science trip anyway.. Page 5 actually stopped me on my tracks the author quotes Psychologies Daniel Kahneman of Princeton University " Financial decision making is not necessarily about money, its also about intangible motives like avoiding regret or achieving pride" . I loved this .. think I will be able to run through this book.

Listen to this on page 3 - Investing brains often drive us to do things that make no logical sense- but make perfect emotional sense. That doesnt not make us irrational. It makes us human. Our brains were originally designed to get more of whatever would improve our odds of survival and to avid whatever would worsen the odds. Emotional circuits deep in our brains make us instinctively crave whatever feels likely to be rewarding - and shun what ever seems liable to be risky.

To counteract these impulses form cells that originally developed tens of millions of years ago, the brain has only a thin veneer of relatively modern, analytical circuits that are often no match to the blunt emotinoal power of the most ancient parts of your mind. Thats why know the right answer and doing the right thing are two different things.

[Henrik Haapala · Rating 5 out of 5]

Absolutely massively useful!!

[Madikeri Abu · Rating 4 out of 5]

"The word invest literally means to clothe yourself in something."

An expansive book in the field of neuroeconomics and behavioral finance, Your Money and Your Brain, is an in-depth study by behavioral economics guru, Jason Zweig, a financial journalist for more than 30 years. In this book Mr. Zweig tries to explain with numerous examples why some people make better investors than others, why majority investors lose money in the stock market, why the herd mentality among masses is so strong, compelling, persuasive and appealing and why humans do what they do. The reason in simple. For most of its existence humans have been hunter gatherers and their brain is tuned to avoid danger than to lookout for opportunities. This is the most deciding factor in his behavior towards money and investment because the emotional traits of anxiety, regret, fear, greed are more assertive and overwhelming than the positive feeling of hope, confidence and optimism because his brain is wired to flee from a danger than to fight it. To underline his thesis the writer copiously quotes from the works of Nobel-Prize winning psychologist and the author of the best selling book Thinking Fast and Slow, Daniel Kahneman.

This book is very informative and very interesting and replete with loads of suggestion and advice on savings and investment and is a must read for all those who are invested or contemplating stock market/bond market investment. Strongly recommended.

Favorite Quotes:

"My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities."

"Financial markets humiliate anyone who thinks they know what’s coming, so expect to be surprised."

"money spent on acquisitions is more likely to be thought of as a mistake as time passed. Money spent on experiences are more likely to be thought of as better as time passes."

“If you don’t know who you are, then Wall Street is an expensive place to find out.”

[Wlad · Rating 2 out of 5]

Assim como Rápido e Devagar: Duas Formas de Pensar e The Behaviour Gap: Simple Ways to Stop Doing Dumb Things with Money, esse livro traz pesquisas e conselhos sobre nosso comportamento em relação a dinheiro e investimentos. Como já tinha lido esses dois antes, não encontrei muita coisa nova sobre a área nesse livro, a maior parte das descobertas já eram conhecidas por mim. Além disso, o fato de trazer muitas explicações sobre neuroanatomia e psicologia comportamental deixou a leitura maçante para mim.
O autor é a favor de investimento passivo por meio de fundos de índice e argumenta que essa é uma boa estratégia pois o mercado já seria eficiente em precificar ações. Porém, ao longo do livro, ele mostra diversas situações em que o mercado foi completamente irracional ao precificar ativos, contrariando seu conselho inicial. Outros livros já mostraram os méritos de investimento passivo mas, achei que esse não apresentou bons argumentos para isso.
O autor recomenda dollar cost averaging (DCA) para amenizar a dor sentida caso o mercado caia logo após ter feito um aporte em ações. Porém, se uma investidora ainda não se sente confortável com pequenas quedas no curto prazo, talvez não seja o momento de investir em ações. A estratégia DCA acarreta em maiores custos e menores retornos, o oposto de uma estratégia ideal.
Outra coisa que não gostei foi o fato de não ter as referências diretamente na leitura, é preciso ir até o fim do livro para encontrá-las. Em alguns momentos, parece que o autor simplesmente joga a afirmação baseada em algum estudo, sem maiores explicações.

[Andrew · Rating 2 out of 5]

It probably isn't fair to rate it without reading the entire book, but I couldn't get 20 pages in before my brain shut down. Why did I decide to read a 200+ page book about neuroeconomics and money? I already understand the fallibility of using instinct/intuition for complex decisions like investing.

The book follows the common, serialized format of sharing stories about tests and experiments to prove a point. It adds in quiz questions and thought experiments to further solidify the point which some may find enjoyable. I personally found this immediately unnecessary and exhausting to drudge through. It immediately became clear to me that I would not be able to get an itemized list of action items to safeguard myself from my reflexive brain's fallibility when it comes to investing.

Maybe I disliked this so much because I already read Common Sense on Mutual Funds by Jack Boyle, which thoroughly proved that high portfolio turnover that comes from an actively managed fund is a cost prohibitive practice for the birds. Maybe those birds are the ones who should be reading this book instead of me.

[Hoang Minh Luong · Rating 4 out of 5]

3.5/5
***

“A monetary loss or gain is not just a financial or psychological outcome, but a biological change that has profound physical effects on the brain and body”.

How investing affects our psychology is presented quite convincingly with a number of research (even though some still raise my eyebrows for too small its samples to have any reliable conclusion).
What impresses me the most is to see how every investment decision could affect our brain, like (1) the way our brain conceives financial loss in the same way as physical danger; or (2) how investing in any international stock/market turns on the fear system (amygdala area in our brain). Also, the part that explains how when we get old, our brain actually develops to focus more on the positive stuff is really interesting.
The problem for me with this book is that some parts (like the one about happiness) are a bit mundane, and sometimes I had to drag myself through it. So even though I highly recommend this one for anyone who wants to learn more about the psychology of investing, I would suggest one to skim through some parts and focus on other more important novel ones.

[Flying Dutchman · Rating 5 out of 5]

Das Buch war trotz englischer Sprache für mich gut und flüssig zu lesen. Einige Wörter musste ich nachschlagen, das meiste ergab sich aber aus dem Kontext.

Inhaltlich liefert der Autor eine Vielzahl interessanter Erkenntnisse aus der Forschung in Bezug auf menschliche Verhaltensweisen (insbesondere Entscheidungsfindungen), die aus kognitiven Verzerrungen resultieren. Viele der Feststellungen waren mir bereits aus dem herausragenden Werk "Schnelles Denken, langsames Denken" von Daniel Kahnemann bekannt, wobei das vorliegende Buch ein dankbarer Anlass der Wiederholung / Vertiefung dieser Informationen war.

Positiv hervorzuheben ist meines Erachtens auch, dass das Buch sich nicht nur auf Erkenntnisse in Zusammenhang mit dem Investieren beschränkt, sondern auch andere Themen aufgreift, z.b. wie man glücklich wird, wie man Geld sinnvoll ausgeben kann oder auch wie richtiges Sparen funktioniert.

Alles in allem ein hervorragendes und uneingeschränkt empfehlenswertes Buch, wobei ein gewisses Maß an Kenntnissen der englischen Sprache erforderlich ist. (durchschnittliche Kenntnisse genügen aber meines Erachtens)

[Matt · Rating 4 out of 5]

A deep look into the field of neuroeconomics, which studies the way our brains react to thinking about finances and investing.  This book references loads of great research on the emotions involved with investing and the specific parts of the brain that are involved with financial decisions.  It also details the differences between our reflexive and reflective thinking and describes how we as humans are wired to live for today instead of saving for tomorrow.  There are several great investing tips included such as portfolio design, the benefits of auto-rebalancing and even an investing checklist to consult when buying a stock or mutual fund.

The closing chapter in Happiness was my favorite; it describes happiness in life as 3 basic paths: having, doing and being.  He explains how happiness from having possessions fades over time, but happiness from doing (experiences and activities) and being (getting involved with community or a cause) is more meaningful and lasts much longer.

[Dan · Rating 5 out of 5]

Amidst the current electronic vehicle and technology hype in the stock market, I experienced emotional turmoil. Envy, fear of missing out, greed, panic buying, panic selling, and then remorse and regret. While money should secure our safety and home, it became the source of sleepless nights and anxiety. Reading and understanding herding and irrational investing fallacies through books is enlightening. However, having to experience such fallacies is emotionally devastating.

Zweig's book helped me understand how anyone, including myself, can make mistakes. My obsessiveness exacerbated my behavior. I realize what I can and cannot do in the long-run. Most of all, the book taught me the most important aspect, happiness. I needed peace of mind, fulfillment, and calm. My lesson from the book is that I want to be an emotionally intelligent investor. For me, investment is a frictional cost and means to help me continue my hobby, reading, social life, and work.

Whenever I feel I am lost in the financial world, I will return to this book.

[Harshit Jain · Rating 5 out of 5]

This book is a hidden gem, often overlooked and frequently misunderstood. It unquestionably merits a rating higher than 4.5 stars. I've gleaned a wealth of investment knowledge from this single book, surpassing what I've learned from a dozen others. It should unquestionably be essential reading for every investor.

The book delves into the intricate relationship between our minds and emotions and how they impact our investment decisions. It provides invaluable insights on how to navigate these psychological hurdles, ultimately helping us become more adept investors.

The final chapter, centered on happiness, is a revelation. It has not only enriched my understanding of life but also reinvigorated my perspective. In fact, I found it to be more impactful than countless self-help books I've encountered.

In sum, I can't recommend this book enough. It consistently garners high praise for a reason, and I join the ranks of those who hold it in the highest regard.

[KNCHNGL · Rating 4 out of 5]

Started re-reading this book in the wake of the recent bitcoin / crypto / blockchain speculation that has ensured in the last couple of months, to get a better grip on FOMO mania. As the editor of the revised edition of Benjamin Graham's "Intelligent Investor", Mr. Zweig is most certainly qualified to write on this topic. From evolutionary psychology to behavioral economics, this is a great primer on how and why your brain works to make you feel the way you do. The lessons here are much more than just about making money; they are applicable achieving a balanced and happy life. At times, the content felt a bit redundant, but that was expected given the overlap of what constitute human emotions. I especially liked the way it was organized according to the major emotions, culminating in what we all seek - happiness.

[Adam Holmes · Rating 2 out of 5]

Disappointing.

Perhaps it’s my own expectations that left me feeling disappointed as I expected this book to be about investing and the psychological strategies therein. All tolled, the connection between investing strategy and what is discussed in the book could be presented in less than four pages. There is absolutely nothing here regarding the strategy of investing that I haven’t heard before.

I wasn’t entirely disinterested since reading about psychology is never totally boring. After all, I did finish the book. However, many if not most of the psychology experiments outlined within, I was either aware of or had read about in other books (author Dan Ariely comes to mind). I was also aware that these are not exactly peer-reviewed experiments.

In the end, I found a lot of talk but not the substance I was looking for.

[Mark Skinner · Rating 5 out of 5]

Jason -

Very well written and informative book on how investors should tackle emotions and important concepts in managing all that goes into investing, providing for the future, and generating wealth for their children. I've always enjoyed reading and listening to anything you have to offer and this was no exception. Looking forward to more from you.

It really hit home the importance of persepctive relating geneartions living and income situations to their perceived happiness and the fact that anticipation in many ways is stronger than what actually happens to us. You did not disappoint in providing those who have researched what emotions and triggers our brains respond to and how we can use that information to better manage our finances.

I'm fascinated with brain research and more recently neuroeconomics. Thank you.

[Marcus · Rating 5 out of 5]

Fantastic overview of many ways our brains function when confronted with the decisions that are made in relation to investing, how we spend our time, our emotions and anticipated emotions, and ways to counteract how our brains may trick us into thinking we’re making a good decision, when sometimes our reflective and reflexive brain is actually making a foolish decision. Unlike any other investing book I have ever read and makes me want to read thinking fast and slow by Kahneman and various other pioneers of psychology in relation to finance and decision-making. Sometimes the book reads like a series of studies without a coherent narrative, but these numerous tangents are nonetheless useful in understanding the importance of reconsidering our assumptions. Fantastic book, excellent resource, I’ll likely need to re-read it every few years to really drill these lessons home.

[Marco · Rating 3 out of 5]

In this book you will find a lot of experiments done with people about how they react to certain content related tests. Then after these experiments, the author will describe how we people make faults during this experiments. He also writes about mistakes we make in daily life related to the topics discussed. During the reading you will find interesting and fun facts that you might never have imagined. And after all at the end of each chapter, there is a summary about how you can implement real strategies to improve your life and especially your investing game. Easy read. If you are known with Daniel Kahneman then you will probably like this book to.

[Malin Friess · Rating 3 out of 5]

You are in Detroit, Michigan...you start driving South. What country will you hit first? Mexico, Guatemala, Honduras or Canada. OK you have your answer...are you 50% certain, 75% certain, or 99% certain you are correct?

Most people got the answer wrong and are overly confident with their choice (the answer is Canada--as you cross the bridge you will enter Windsor, Canada to the south from Detroit...google it)..such as most people are wrong with investing and also over confident and downplay the risk.

The book is filled with psychology research about why smart people make impulsive, risky decision and don't save and procrastinate.

3 stars.

[Ryan Hansen · Rating 4 out of 5]

I liked this book a lot. It gives a lot of anecdotes and examples to illustrate the points that Zweig makes in his text. The only thing that I did not love about it is that it focused a lot on selecting single stocks, including buying and selling. He does talk some about long term investing. I do not trade in single stocks, but did find a lot of value, insight and inspiration in this book. Definitely gave me some things to think about and was well worth the time and effort it took to read it.

[Rebecca · Rating 4 out of 5]

Glad I was able to wrap this book up! The book is pretty dense with examples and reference to the brain. I liked the overall philosophy of the book, but found myself frequently thinking....well this doesn't really apply to me. For example I don't buy individual fund/stock and I play a long term game, so all the parts about timing and regret are generally interesting and useful, but not in the specific ways the author references. I was pleasantly surprised by the last chapter (Happiness) and it really is applicable much wider than just money.

[Charity · Rating 3 out of 5]

Basically we all have a hard time saving money because the idea of hitting it big releases more dopamine than saving and earning interest. Interestingly, losing money is interpreted as more painful than winning the same amount. Also, humans do a really shit job of assessing risk/reward. In the end we can’t take it with us into the next life so stop stressing, mkay? (I’m paraphrasing but this was the gist of the last chapter).

Fairly dry but with interesting tidbits and studies cited. It’s worth reading if an updated edition is ever released.

[John · Rating 4 out of 5]

Written in 2007, the ideas in this book have been eclipsed in part by the works of others, most notably Daniel Kahneman, the Nobel-Prize winning psychologist upon whose research (with Amos Tversky), much of Behavioral Economics is based.

Zweig delves much deeper into the science of the brain (as the title implies) than other authors. Given the tricks our brains play on us, it doesn't hurt to learn these lessons over and over.