Here’s an excerpt:
Want to become a better investor?
Get brain damage.
That’s the finding of a rather unusual study by researchers from Carnegie Mellon University, the Stanford Graduate School of Business and the University of Iowa. It was published in Psychological Science in June, and its conclusions were reported in The Wall Street Journal last week.
But don’t start playing football without a helmet just yet: It’s not any type of brain damage that helped investors in the study, but rather, a very specific form: a site-specific lesion (a kind of tissue damage) in the region of the brain in charge of controlling emotions.
The investors who have these lesions are unable to experience fear or anxiety. It turns out that lacking the emotionality ordinary investors exhibit leads to better investment decisions. It is not at all surprising that the emotionally limited investors outperformed their peers. We know from experience that when investors allow their emotions to unduly influence them, they tend to make foolish — and expensive — decisions.>
Emotions disrupt the process in s suprising number of ways. Its more than mere fear and greed — surprisingly, it also impacts us analytically.
Prior Apprenticed Investor columns can be found here.