Tuesday, March 9, 2010

Your Money & Your Brain - some advice

Chapter two of YM & YB explains how the reflexive and reflective brain operates. It also starts to give practical recommendations for investors. I will review a few in this post:

1. When it comes to trust, go with your gut. When choosing an advisor don't get caught up in the alphabet soup of credentials. Research a potential advisor by using www.nasaa.org or www.advisorinfo.sec.gov. These sites will let you know about discipline issues that may exist. Once you find a credentialed adviser go with somebody you trust. If you have an unsure feeling, trust your gut and keep looking.

2. "Ask another question" about your investment decisions. Ask yourself the following questions when you are about to make an investment decision: "how do I know," "do I need more information," "how would I advise a friend."

3. Conquer you senses with common sense: don't get caught up in the marketing. Remember the Wall Street marketing machine are appealing to your reflexive systems feelings of comfort and security. When making decisions compare the product to a benchmark. Also, ask how it fits with your total investment strategy.

4 Use rules, stay with you plan unless you have reason to deviate.

5. Count to ten. Your reflexive brain wants to immediately respond to current situations. When your emotions or the environment are running high. Stop, slow sown and evaluate the situation according to your rules and the rational evidence you may have at hand.

6. Do your homework so you have the rational info to anchor yourself with. Read a little about market history, portfolio development and the investment you are about to purchase or sell. Warren Buffet studied the financial of Anheuser-Busch for 25 years before he felt it was cheap enough to buy.