Why Are Most People Terrible Investors?


I just got an email asking me this question:

Why are most people terrible investors?

This is one of many answers…

Most people are propelled by their own fears and fantasies while having no idea that this is the case.

Freud called it the iceberg (or topographical) model. 90% of the iceberg is underwater. Its his representation of the unconscious mind and the things that we are thinking or feeling that we are unaware of for whatever reason.

Not only are you unaware, but these undetermined experiences are guiding your behavior without you even knowing it, especially when the unconscious fear or fantasy is being triggered.

Sure, there is some variability there, and some people are more self aware than others, but for the most part its about 90%.

What’s more, even if you raise awareness and figure out that you are scared shitless of losing money because your distant ancestors, the ones whose genetic make up yours is a descendant of, lived in a highly resource scarce environment, one that you could not even envision,  knowing that this is so and changing are two very different things.

Oh, One Other Thing – Beware People Telling You How To Cure Yourself of Being a Terrible Investor…

They have no idea what they are talking about.

Every time I read an article that explains why people are terrible investors (there are many reasons and my post only provides one angle), the social scientist or neuro-scientist or blogger/journalist reporting on the phenomenon snaps his finger at the end and tells you that now that he has explained to you why you are a terrible investor, you will be a much better investor.

This is ridiculous.

Here’s a quote from the Stanford Graduate School of Business Blog in an article titled Your Genes May Affect Your Financial Decisions that summarizes a study done linking genetic variation and risk taking.

“You’re not a slave to your genotype,” he said. “If you understand how it’s influencing your behavior, then you have a shot at changing that behavior.”

When I read this type of quote from the researcher, and they occur often, I find it so misguided that I have no choice but to question their research and how they contextualize their expertise back into the real world.

If you are genetically predisposed to having a food allergy, does your awareness of it cure you? No, it tells you to stay the fuck away from peanuts.

So, even awareness is overrated. Its a start but really its about your choices. Its where the training begins, not ends.