Your Lizard Brain
"...your emotions play a large part in your ability to make investment decisions. Astute investors know this and as such can control their Lizard Brain."
Our Lizard-Brain (limbic brain) sits at the top of our spine and is command control for the human body, it is 'pre-verbal' and 'tells' our body what to do and when to do it, automatically, using chemical and electrical signals.
The main functions of the Lizard-Brain in all animals, including humans, are:
• Fight Flight or Freeze - When threatened, should I fight, should I try to escape, or should I just stand perfectly still and hope it doesn't see me?
• Food - Is it edible? Is it ripe? Is it poisonous?
• Reproduction
• Overall Survival - Breathing, heartbeat, body growth and maintenance etc.
• Addiction - this is also the part of the brain, which feeds our addictions to drugs etc.
Recent studies have also shown that this part of our Brain is also affected by money.
Studies have been under taken to see how financial bubbles are created, the first known bubble was the Tulip Bulb bubble in 1637, this was followed by the South Sea bubble, the Florida Real Estate Craze, The Great Depression, 1987 Crash, Asian Crises, the Dotcom Crash and the Housing Bubble and Credit Crisis of 2007-2009 now known as the GFC.
A bubble starts slowly, some astute investors recognise a growing market early and invest, at first the average person does not see the potential of the new investment and using their Brains Cortex reasons that they best not invest.
However, as the investment strategy starts to provide greater and greater returns, envy takes over, this is our Lizard Brain getting excited about the money being made.
From here almost as a single conciseness, the population of investors start to invest pushing the price higher and higher. All are mistakenly using past performance to predict future profits.
Your Lizard Brain, which is excited by money, drives this; the rational part of your Brain is not even being engaged at this point. This normally happens around 3 years after the initial investment idea was generated. The bubble can go on for many years before the burst, but burst it will.
The end always comes quickly; again, the astute investor decides that enough profit is made and starts to exit, pushing the price down. Panic selling and the eventual collapse of the price quickly follow this.
These findings were published after a study was completed on the US housing bubble in 2007.
It showed that your emotions play a large part in your ability to make investment decisions.
Astute investors know this and as such can control their Lizard Brain.
Now you know, what is important is what you do with this knowledge.
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