Mental Models: Brain and Investment Timing
Updated: Jul 28, 2019
Timing is everything! A challenge for investors is get the timing correct in their forecasts. How does the timing of current events impact the market and what is your brains role? This is relevant to the Equifax data breach and the 2008 housing crisis. Some experts were calling out the possibility of an economic crisis linked to subprime mortgage practices, but their timing was early. Predicting the speed at which events will unfold is extremely difficult. One particular speculation is the current day 'loss of 20-40% of China's hogs' (a primary source of the worlds protein) due to 'African Swine Fever'. This will likely affect future prices for many protein sources leading to rising prices by the end of 2019 and protein consumption will have to go down.
Newly developing world events will cause a burst of noradrenaline (NA; AKA Norepinephrine, NE) within your brain. This chemical keeps your brain in a focused deliberative state, then moves you back into an exploratory state to track the progress of the proposed 'hog decline & world protein deficit'. The release of noradrenaline in your brain is particularly useful with the possible decline in the worlds protein (a never before event), helping investors to track the impact on the market. Or, we at Mental Models Podcast are suffering from 'confirmation bias' and the 'hog decline & world protein deficit' is an incorrect observation. Mental Models Podcast will revisit the prospective 'hog decline & world protein deficit' as time goes on.
Timing is Everything
The brain is built for a 24 hour clock. As a society it is impolite to be late for a business meeting, while being 15 minutes early is more than acceptable. For an investor being early is the same as being wrong. If you buy a company and go long you want to see an uptake, but if your in early you loose money.
Habituation: Brains not wired to project the future
Habituation is defined as when we are expecting an event, yet it doesn't occur thus we believe the event won't occur in the market; your brain begins to believe it won't happen. For example the speculation by Mental Models Podcast that the is the current day 'loss of 20-40% of China's hogs' (a primary source of the worlds protein) due to 'African Swine Fever'. Now that this event is proposed we will watch and wait to see if it will occur, if there is no change in hogs than our brains begin to believe this event will not happen. We will habituate to this event not occurring. Click here to listen to complete podcast on Mental Models: Brain and Investment Timing: #16
Co-Author Dr. Daniel Krawczyk, Professor at the University of Texas at Dallas, Deputy Director of the Center for Brainhealth, Co-host of Mental Models Podcast, and author: Reasoning: The Neuroscience of How We Think 1st Edition and soon to be released book with George Baxter, JD, CFA "Understanding Behavioral Bia$: A Guide to Improving Financial Decision Making"
Co-Author George Baxter, JD, CFA, CEO and Hedge Fund Manager at Saber Point Capital, Dallas, TX, & author: Baxter on Magic: A Guide to Proper Playing Techniques for Magic : The Gathering, Pro Magic: The Art of Professional Deck Construction, Mastering Magic Cards: An Introduction to the Art of Masterful Deck Construction, The Tables of Magic, Magic Cards Simplified: For Player Parents and Beginners of Magic - The Gathering, Deep Magic: Advanced Strategies for Experienced Players of Magic : The Gathering.
Editor: Dr. Linda M. Drew, Producer of Mental Models Podcast, Author, Research Scientist & Instructor at the University of Texas at Dallas