Book Review: Your Money & Your Brain

How is that we can sometimes be pretty stupid with our money? We tend to sell winning stocks too early, hold losing stocks too long, regret the stocks we didn’t buy (think Apple or RIM), regret the stocks we did buy (think Nortel or JDS-Uniphase), play the 6/49 despite the lousy odds, believe we are above average investors, …

In this brilliant new book, Money magazine columnist Jason Zweig, provides fascinating insights into the inner workings of our brains based on research from the burgeoning field of neuroeconomics. Subtitled “How the new science of neuroeconomics can help make you rich”, the book shows that, whether we realize it or not, our brain is a cauldron of emotions and takes a deeper look at some of them: greed, confidence, fear, surprise, regret, happiness, etc. Helpfully, each chapter ends with a list of actions you can take to counteract or take advantage of a particular emotion.

My favourite parts are the fascinating experiments that illuminate some aspect of our behaviour and the chapter on risk. I’ve always thought that the questionnaire you fill out to figure out your risk tolerance is pretty much worthless. For one thing, thinking about losing money ain’t the same as really losing it. Also, losing 20% when your portfolio totals $20K is vastly different from losing the same percentage when the portfolio is worth $500K. In the chapter on risk, the author shows “how much risk you should take, how to stay calm during market storms, and how to distinguish false fears from real dangers”.

The book has gathered critical acclaim from the likes of Daniel Kahneman, Bill Miller, David Dremen, Peter Bernstein etc. and is likely to become one of the hottest business / investing books of the year. It is available for $20.16 from Amazon.ca (affiliate link). A preview of the book can be found in some of the excellent articles Mr. Zweig wrote for Money magazine and other publications archived here.