Investing Insight from "How We Decide"

"The secret is there is no secret" this quote is from:
Lehrer, Jonah (2010-01-14). How We Decide (Kindle Locations 1088-1098). Houghton Mifflin Harcourt. Kindle Edition.

"How We Decide" by Jonah Lehrer is wonderful. If you have any interest on how the brain works I highly recommend this interesting and readable book.

In the quote below he summarizes how the brain effects investing decisions: the dopamines in your primal/reactive/lizard brain want to see patterns in the world. This usually spells disaster for investors:

"The lesson here is that it's silly to try to beat the market with your brain. Dopamine neurons weren't designed to deal with the random oscillations of Wall Street. When you spend lots of money on investment-management fees, or sink your savings into the latest hot mutual fund, or pursue unrealistic growth goals, you are slavishly following your primitive reward circuits. Unfortunately, the same circuits that are so good at tracking juice rewards and radar blips will fail completely in these utterly unpredictable situations. That's why, over the long run, a randomly selected stock portfolio will beat the expensive experts with their fancy computer models. And why the vast majority of mutual funds in any given year will underperform the S&P 500. Even those funds that do manage to beat the market rarely do so for long. Their models work haphazardly; their successes are inconsistent. Since the market is a random walk with an upward slope, the best solution is to pick a low-cost index fund and wait. Patiently. Don't fixate on what might have been or obsess over someone else's profits. The investor who does nothing to his stock portfolio—who doesn't buy or sell a single stock—outperforms the average "active" investor by nearly 10 percent. Wall Street has always searched for the secret algorithm of financial success, but the secret is, there is no secret. The world is more random than we can imagine. That's what our emotions cant understand."