I've been poking away at a reading list of Boglehead-adjacent people writing on financial topics. My most recent entry is "Your Money & Your Brain" by Jason Zweig. I was interested in the topic, and even more interested in reading Zweig - he is highly regarded in the circles I frequent, with his columns often quoted as gospel in relation to current economic trends and investment fads to beware. I don't subscribe to the Wall Street Journal so I haven't directly read his columns, but I've been impressed by the guest pieces I've seen from him elsewhere and from a few appearances at Bogleheads conferences.
As you can guess from the title, the book is about the psychology of investing, adjacent to behavioral economics. I loathe the subtitle of the book: "How The New Science of Neuroeconomics Can Help Make You Rich." I strongly suspect that subtitle was driven by the publisher and not the author, as this is not a get-rich-quick book and in fact warns against that kind of mindset. This was a rare book that I bought as a physical paperback rather than checking out from the library, and I was kind of embarrassed to show the cover while reading in public lest onlookers believe I am some sort of greedy fool.
The actual book is great, though! It's much more science-based than I imagined. Somewhat like The Wisdom of Crowds, it's mostly directly based on published academic research and interviews with leading scientists, supplemented by some of Zweig's own reporting and experience as a personal finance journalist. By far the most frequently quoted source is Daniel Kahneman, the author of the fantastic book Thinking Fast and Slow. I found there to be a great deal of overlap between the two books: TF&S is a lot longer, but does spend a surprising amount of time on discussing investments, and I don't think there's a whole lot of actionable information in YM&YB that you wouldn't find in TF&S.
Interestingly, while Kahneman was a psychologist and Zweig a journalist, YM&YB goes much more into the biology of psychology than TF&S does: it describes major areas of the brain, like the amygdala, including what it looks like, where it's located, what function it serves and how it has behaved in different experiments. This sort of in-depth biological analysis continues throughout the book. It's kind of cool, but at the same time felt somewhat useless to me; I can't really do anything with that knowledge. The overarching idea is that the way we think about money is rooted in biological processes that evolved over millennia, which is helpful for us to keep in mind, so we don't overly moralize others' decisions or excessively criticize our own, and so we can recognize and respect why these forces in our brain are so powerful and hard to overcome. This additional level of detail builds credibility for this perspective of seeing our brains as fundamentally suspect organs built for a different world than the one we deploy them in; but personally I already believed that perspective.
The prose in this book is really punchy. I can tell that Zweig is a columnist: he uses lots of striking metaphors, pop-culture references, and surprising sentence constructions. In small doses I found this really engaging, but for me it could feel like a lot at book length, and I started kind of glazing over some of the subject matter introductions after I'd been reading for a while.
Many parts of the book seem at first to be contradictory. One section writes about how we're attracted to new and novel things, so we tend to naturally be drawn to flashy, buzzy products like internet stocks over boring things like utility bonds. Another section writes about how we tend to trust things we're familiar with, so people tend to invest in the company they work for instead of ones they're less familiar with. Those two observations seem contradictory (preferring novelty vs. preferring familiarity), but both are true, and I think it's helpful to recognize both forces at work. Some sections write about how we're drawn to risk and the promise of a big payday, others how we're risk-averse and fear losses. Again, both are true, and can be true of the same person of the same stock, at different points in that stock's trajectory: we're overly elated when buying a new stock that we believe will keep soaring up, and overly distraught when that stock takes a plunge. Taken as a whole, things like this explain why most people have a natural tendency to buy high and sell low.
Most of this book seems to be geared towards people who buy and sell individual stocks. I've never been one of those people, and I wonder how many of them are out there. I know that was a huge thing during the late-90s and early-2000 tech bubble, which Zweig was present for. My impression is that these days most investors use mutual funds, primarily index funds, possibly with tilts for various factors (US versus international, small cap versus large cap, value versus growth, perhaps some sector concentrations, etc.). But I don't know if that's actually true; maybe I've been in the Boglehead bubble for too long! Wall Street Bets definitely proves that there's a big group who likes investing in individual stocks (with leverage!), so maybe there's still a big group of stock-pickers out there, just one I don't think about much.
My favorite part of this book was the late chapter on Happiness. I don't think I necessarily learned anything new from it, but it might be the best-written piece I've read on the topic of money and happiness. People always want more money, no matter how wealthy they are. If you're destitute, more money does increase happiness, but the effect quickly wanes beyond a fairly low point. The anticipation of getting something (money, a car, a home improvement) is greater than the pleasure of actually getting it; and the pleasure of getting it is much better than the pleasure of having it. But experiences tend to get better over time: we remember a vacation more fondly than we actually felt while on that vacation, for example.
As with Thinking Fast And Slow, Zweig highlights the importance of optimism. It helps everything in life: it makes our moment-to-moment and day-to-day experiences more pleasant, but it also tends to lead to stronger relationships, business success and other external markers of improvement. One new thing that I did learn from this chapter is that older people tend to be happier than younger people, and based on research, it appears that this is because older people are better at blocking unpleasant thoughts and images from their mind: even if they experience the same distressing thing as a younger person, it tends not to be as activating for them.
Like some other books I've liked, including The Wisdom of Crowds and Battle for the Soul of Capitalism, this book was written during the years after the dot-com bust and before the 2008 financial crisis. It always feels so weird to me to revisit financial writing from that period, as it inhabits a very specific mindset that doesn't feel like anything before or after. There's some hard-won world-weary wisdom coming out of the Internet bubble crash, and as readers we know about this other big wave that's coming but the authors are oblivious.
All in all, I think Your Money & Your Brain is a really helpful book, presenting the findings of behavioral economists in a really direct and digestible manner; the lessons and advice it gives are far more helpful than, say, tips on sector tilts or bond maturities. That said, I think for someone like me who has already immersed themselves into writing in this space, there isn't a whole lot of brand-new information. But as with most things in investing, it's always helpful to re-center ourselves and recommit to the actions that we know will lead us to success, even when our lizard brains are insisting we go another way.
No comments:
Post a Comment