Eight inspirations from brain science to fund managers Z

Eight inspirations from brain science to fund managers

First, always want more. The human brain evolves in a scarcity of materials, so getting any "resources" like food, sex, money, etc. can make people feel good and the brain will encourage us to go on. In fact, drugs such as cocaine are "kidnapping" the "need" system in the brain, prompting us to "work" to get more "rewards". Research shows that investment and drugs are consistent at this point. But one thing to note is that the whole process happens outside of our consciousness. When we are accustomed to this feeling or environment, the same "dosage" can no longer provide us with the same "pleasure". So when the $ millions of deal becomes commonplace, there is no longer a novelty, and the emotional changes that are triggered by the so-called big deals disappear, unless new markets, new asset classes, and larger deals emerge. Since the system of brain demand returns is always in the "hungry" state, people will naturally look for possible "target". It is only when the brain matures that it actively says "no" to certain returns. Unfortunately, the frontal part of the brain that performs the most late maturation, usually after 30 years of age, and men later than women, which is why young men are more "adventurous" than women. Even at the age of 30, the expectation of "reward" in the frontal part of the brain is "blinded" by certain factors in decision-making. Experts suggest that investors should monitor daily trading volumes to prevent "being stimulated" and taking on excessive risk after several successful trades. For professional investors, it is time to stop or divert attention when the transaction becomes a game-like activity.

Second, balance the risk. For roller coaster, the brain tells us "away from the point", on the other hand, "experience" over the "risk" system, the conclusion can be a try. In 2002, a professional Forex trader conducted an experiment to observe their "physiological" response to market fluctuations. The conclusion is that the richer the experience, the less the reaction of fear, because the experience can provide memories to hedge against the current fear of fear in the face of a variety of frightening "signals." But once the fear goes beyond experience, everyone will "overdo" the fear and collectively rush to "safety". Research shows that the systems that seek returns, risk systems, and the systems that measure risk and return ultimately decide to execute, three are located in different parts of the brain, so the risk and return of the nerves are often not "linked", leading to certain over-exposure to risky investment accidents. As a management, it should be timely to identify the situation of high or low risk. Too low is not good, because in the trend trading market, traders or investors should take the initiative to undertake a certain risk. It is also worth pondering that for fund managers, when the brain is measuring risk and reward, managing "other people's money", risk aversion will be reduced, the internal brain risk and return of the "communication" path will be very different.

Third, and so on. People are the only animals that can delay the "pleasures", but the wait is not without cost, the brain prefrontal cortex activity will be more intense, which means more "return" is required. In a volatile and volatile market, effective trading requires investors to slow down their decisions and to wait for better opportunities. When investors face a lot of information, if they realize that the cognitive load is too heavy, they should deliberately train themselves to "back" and later "back" before pulling the trigger of investment.

Four, Herd. With the same class, the brain releases a hormone called oxytocin that makes us feel good. This may be really good for nascent's ancestors, and not necessarily for modern financial markets. The herd mentality to a certain stage (a certain investment subject attracts enough people), will cause a bubble. In other words, when the fund manager is not fully thinking, but only rely on the grapevine and asset prices to invest, that is typical herd behavior. Bubbles will eventually burst, just a matter of time. Unless you are an absolute fast-forward trader, more profits must come from the counter-VW. Reckless buying and selling is an inevitable manifestation of conformity. As an investment professional, what needs to be done is to endure the loneliness that has been most feared by humans since ancient times. By practicing, it is possible to suppress this instinctive fear. One is to make sure that your investment is always based on fundamentals rather than current trends. The other is to separate the other social exchanges and the investment behavior, together with the work meals no problem;

Five, missing the information line. Our brains are designed to be constantly looking for freshness and to be rewarded. When making investment decisions, it is difficult to distinguish between rational seeking returns and the brain's instinctive impulses. For fund managers, the new information seems important, and over-reception has side effects. New information needs to occupy more cognitive resources to classify and store memory, which will occupy the cognitive resources of decision evaluation and execution. So it is advisable to turn Bloomberg and CNBC off to listen to classical music when making investment decisions, perhaps better. The financial media must have its market, so it can not be completely ignored, but it is best to accept the limited (once a day to two times). The inclusion of "noise" in the decision-making process helps to improve decision-making, because the brain can switch between deliberate and automated reactions, but the noise is not so large as to overwhelm the deliberate. At the same time, do not be distracted by two points when trading: gossip and the so-called expert comments.

Six, who is better than. The 2002 Nobel laureate found that the subjective judgment of value depended on the objective reference of the choice. In addition, the comparison between humans and monkeys found that human beings are very dependent on "reference" decision-makers. Investors, for example, would be willing to take on more risk and lose money to increase risk in order to achieve breakeven. Therefore, the fund manager is advised not to aggressively change positions after profit or loss. At the same time, it is recommended not to peer return level or position as their own reference. The risks, liquidity, and investment timelines of each group are very different. Fund managers do not have to compare with others, nor with their own past.

VII, break the inertia. The human body system conforms to the economic principle, that is to achieve the target with limited resources. Over time, the brain "groped" for two points: one is experiencing the same or similar situation, some of the brain "preference" is activated. Second, when something is repeated many times, even in the unconscious can be done, such as driving while listening to music. This means that unless the expected benefits are high, people will make decisions based on "faith" in the memory of the past. Such decision-making is bound to not use sufficient cognitive "resources" to make the best choice. Even if fund managers are too hard to escape, the longer they do the job, the more they "bother" to think. Even if something new happens, they say, "That's not it." It is recommended that fund managers occasionally change their brains, take a vacation or read different types of books, which can break the inertia of thinking. Also, eat breakfast well, the hungry brain itself is an obstacle to learning.

You love your combination, but it doesn't love you. According to scientific experiments, the brain can produce very powerful human oxytocin-mediated empathy, which allows us not only to love our families, but also to have feelings for cars, houses and strangers. As long as we spend time with him, we always have some kind of emotion. We always think that the combination that has been built is more valuable, so that our brains get emotional "rewards", but capital markets may not be rewarded. Your portfolio does not give you the same "love", so you should not give too much emotion. If it's a combination of intentions, how can you not love? The way is to let others to manage, already has the fund company to adopt the interchange management combination way, the goal is to prevent the fund manager excessively "defends" the combination. Quantification is also a way. The purpose is to allow fund managers to strictly enforce the decision-making process and trading rules.

Eight inspirations from brain science to fund managers Z