A pretty-darn-exhaustive "This I Believe" as it pertains to money, markets and human behavior.

1/many

Humankind’s greatest asset is an ability to build trust through shared commitment to pro-social fictions.

Capital markets and money are perhaps the most universally cherished and highest functioning of all of these shared narratives.

This emphasis on communal narratives means that we tend to reason in social rather than objective terms.

People are the fundamental units of capital markets.

Therefore, our theories about markets can only be as good as our understanding of human nature.

Your brain (150,000 years old) is much older than the markets (400 years old) it seeks to navigate.

Humans are wired to act, markets tend to reward inaction.

The importance of money seems to diminish, not improve, decision-making.

Our early experiences in capital markets imprint on our brain in ways that tend to be lasting.

Hedonic adaptation is the process by which increases in wealth are matched pound-for-pound by increases in expectations.

The anticipation of reward releases a flood of dopamine which primes us to become sloppy and undisciplined; success begets failure.

Physical states can impact emotion just as surely as the reverse is true

Loss aversion kept our ancestor alive. It keeps you broke.

The body longs for homeostasis. Thinking about money disrupts homeostasis.

Stress is as much a physical as it is a psychic phenomenon.
Taking financial risk causes real bodily pain.

Fear is impossible to extinguish since the body stores it for a rainy day.

Bad news in the stock market is more regular than your birthday.

“Believe in yourself” is really bad advice for investors

You tend to search out information that proves what you already believe

We react violently to challenges to cherished beliefs and may double down

“I don’t know” is a profitable if seldom uttered sentiment

Paradoxically, the more ambiguous a situation, the more certain we become

Dumb people are too dumb to know how dumb they are

If you feel passionately about an investment idea, you probably haven’t thought hard enough about it

Thinking is metabolically taxing and getting harder as we now have so much to parse

The best information is also the hardest to assimilate because it is often complex

Holding outcomes equal, action is more likely to lead to regret than inaction

We synthesize happiness (but fail to learn from mistakes) by building up the choices we make and denigrating the road not taken

We immediately ascribe higher value to things we own

An emphasis on sunk costs can lead us to work for completeness over quality

We tend to confuse ease of recall with probability

People think in stories, not percentages

We overestimate the likelihood of high-impact-low-probability scary events

Risk measures that fail to account for behavior are useless

Both too little and too much information makes markets inefficient

Complex dynamic systems paradoxically require simple solutions to avoid overfitting

Noise is what markets possible. It is also what makes them almost impossible to beat.

Our love of money makes us less, not more, reliant on emotion when making financial decisions

Emotion provides crude but important shortcuts that preserve mental capacity

Strong emotion leads to greater reliance on heuristics

Emotions are good for making life and death, time sensitive choices, but are less useful in other contexts

Emotion makes us a stranger to rules we would otherwise profess to follow

Powerful feelings have a homogenizing impact on behavior

We tend to conflate our desire with an outcome with its likelihood

We are prone to viewing enjoyable activities as less risky (and vice versa)

Intuition exists but only in areas that provide quick, reliable feedback. Listen to your gut is profoundly dumb advice for investors.

Our body experiences urges to act that are only later interpreted mentally. Build a model and follow it slavishly.

Situational variables are more predictive of behavior than individual variables. Avoid emotion-inducing situations like watching financial news and frequently checking account balances.

“Probably” is the most powerful word in investing. Complicated macro narratives should be scrupulously ignored.

The likelihood of an event and the intensity of its impact are both important considerations.

Data without theory and theory without data both produce spurious results. An investable factor must be empirically evident, theoretically sound and have roots in behavior.

The perceived riskiness of an asset class often has more to do with its short-term than LT performance.

Risk taking is more situationally than personally determined. Avoid fear-inducing situations and ensure that portfolio management processes are rules-based rather than discretionary.

FIN/