Book Review: Your Money and Your Brain
Sunday, May 18, 2008
I bought Jason Zweig’s Your Money & Your Brain expecting a slow and dry explanation of how the brain works, followed by some sort of scientific explanation about how it relates to investing. Admittedly, aside from Psychology 101 and a few Malcom Gladwell and Dan Gilbert books that have appeared on the New York Times Bestseller List, I’m a bit of a novice on the topic. I was pleasantly surprised with how much I learned from Your Money & Your Brain.
Zweig lays out the book in about a dozen well-organized chapters that covers a variety of topics on how the brain works and why we behave the way we do when investing. What is truly interesting about the discussion of psychology and investing is that the theory that humans act rationally when making buy and sell decisions may be not be correct. No one goes out of their way to act irrationally, but emotion can do strange things to our decisions, and investing, as it turns out, is one of the most emotional activities out there.
Having traded stocks and options for about a year now, I’ve felt an array of emotions following both very good and very bad trades. What is most interesting about Zweig’s analysis is that I could literally recall all the mistakes I made as a result of simple human psychology. No matter how good my intentions might have been, I know (in hindsight) that I made mistakes because my emotions pushed me to make decisions I should not have made. Controlling an emotion seems to be a skill that takes time to develop, but knowing in the back of my mind that emotional temptation is there will hopefully allow me to make future investing decisions not based on emotion but on pure rationality.
I recommend Your Money & Your Brain to every investor as the book teaches some valuable lessons about why investors behave the way they do when money is involved. I also recommend Your Money & Your Brain to anyone who isn’t interested in investing, simply because it provides valuable insights into how money affects the way we behave, and given that money is now a necessity of life, it is a topic that literally affects every person in the world. It also doesn’t hurt that the book is well-written, entertaining, and easily understandable to anyone, regardless of their psychology background.
Posted by Rob Pitingolo 11:19 PM