"Of Mutual Interest" - Jason Zweig, "Money" Magazine's Investing Columnist
Tuesday, August 14, 2007PAUL KANGAS: In our "Of Mutual Interest" segment tonight, your money and your brain and how one affects the other when making investment decisions. Our guest Jason Zweig, "Money" magazine's investing columnist, has a new book out next month called "Your Money and Your Brain". Jason, thanks for joining us.
JASON ZWEIG, INVESTING COLUMNIST, MONEY MAGAZINE: Thanks, Paul, good to be here.
KANGAS: Investors seemed swamped with bad news these days, volatile stock markets, crumbling credit, major mortgage problems. What happens to your brain and your body with all that negative input?
ZWEIG: Well, Paul, within one or two tenths of a second when you're exposed to real time negative information about your finances, your brain fires up in these ancient fear centers and puts your entire body on red alert for more trouble. Your pulse goes up, your breathing accelerates, you sweat, your muscles tense. And you may not even be aware of this unconscious emotion. But it puts you on edge and it's going to slant your decisions towards selling and panicking.
KANGAS: Tell us how it could affect the buy or sell of a mutual fund.
ZWEIG: Well, if you've been holding a fund for a long time, you may well have a very substantial gain on it. But if you measure how well you're doing in terms of how much you've lost since the peak or how much you've lost during this summer's market troubles, being exposed to the negative news in the market on a real time basis could make you sell a fund that you've actually made money on in the long run.
KANGAS: So it's important for an investor to realize this is really happening and to understand it, correct?
ZWEIG: It's very important. The key thing to understand about how your brain works in these conditions when the markets are very turbulent is that you may be in the grip of your emotions without realizing it. That's why it's called unconscious emotion.
KANGAS: It's almost like a temper tantrum, would you say?
ZWEIG: It's like an internal temper tantrum that you can't really hear at the conscious level. But, yes, it's a lot like a temper tantrum for better or worse and usually worse.
KANGAS: So how does an investor fight this?
ZWEIG: Well, the best thing to do is to realize that this kind of behavior isn't really controllable. And just as, for example, a recovering alcoholic knows not to step inside the bar, the best thing for an investor to do is to try to minimize your -- the amount of contact you come into with exposures to negative news about your finances. And that might mean grabbing the clicker, maybe putting certain TV stations or programs -- not this one -- on mute. And it might also mean just not checking on the value of your portfolio quite as often.
KANGAS: So sometimes watching the market in real time isn't the best idea?
ZWEIG: No. Getting upset -- whether you realize you're upset or not -- is very likely to lead you to take action. And the more you trade, the less likely you are to do well.
KANGAS: Very interesting information, Jason and very important for mutual fund investors to keep in mind. I want to thank you for joining us once again tonight.
ZWEIG: Thank you, Paul.
KANGAS: My guest, Jason Zweig, investing columnist for "Money" magazine.
