This book explains just how stupid you really are.
I’ve heard this mentioned a couple of times and so, when I saw it on the shelves at the local library (what, you don’t cruise the 332 section of the library just on spec?) I picked up Jason Zweig’s “Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.” I liked it.
I dislike the subtitle, though. I bet there was a huge battle about it between the author and the publisher. “I’m not telling them how it will make them rich!” “You have to pretend to say that to sell the book!” It’s really not about how to make you rich. It’s how to try to keep you from being so stupid that you lose your money. His basic premise is that human brains did not evolve to handle investment decisions and will almost always reflexively choose the wrong solution to every financial puzzle. He wants you to fight these reflexes and use your REFLECTIVE brain, instead. He points out common thought traps and some solutions for navigating around them. This book is all about staring at human frailties and then dealing with them. He starts out each chapter with a homey little anecdote: does bread always land butter side down? How come? And then he goes into the science of what ever he’s talking about. It kept my attention almost the entire way through. Just when it started to drag a bit I discovered that the last quarter of the book are appendices. (He and his publisher probably fought about *that*, too.)
The author is a journalist, not a scientist, and I think it’s important to realize that pop science writing like this is probably about as accurate as Wishbone’s version of Don Quixote. But, speaking as someone who learned most of the opera she knows from an episode of Gilligan’s Island, sometimes pop culture *is* the best lens through which to learn this stuff. I thought this book was worth the read and his warnings were well worth heeding.
In brief, he wants you to stop and think. If you like a stock at $x, why wouldn’t you want to buy more when it goes on sale? Instead, people tend to sell when a stock drops. Don’t do that. Buy the company, not the stock. He writes:
Hope for the best, but expect the worst.
Investigate, then invest.
Never say always.
Know what you don’t know.
The past is not prologue.
Weigh what they say.
If it sounds too good to be true, it probably is.
Costs are killers.
Eggs go splat.
Think twice, get it?
By the way, he thinks you should stick all your money in a Vanguard Target retirement fund and be done with it. I’m inclined to agree.