|The Neurology of Investing, The
Critter Brain and the Human Brain by RC Peck
Who’s Managing Your Money?
put, your brain was designed for survival and not for growing
money. And this is a problem if you want to beat the
or at least have your money grow at a respectable rate.
you want to beat the S&P 500 you will have to understand the
difference between two parts of your brain, the critter brain (the
oldest part of your brain) and the human brain (the newest part of your
brain, known as the pre-frontal cortex).
critter brain, the oldest part, sits on top of the brain
Among its jobs, it makes sure that your heart beats, your lungs take in
air, and your body temperature is regulated. To accomplish
the critter brain is continually answering two questions: 1)
I safe?” and 2) “Can I survive this?” If the answer comes
“yes,” then the body keeps doing what it is doing. But if the
answer is anything less than a resounding “yes,” then the critter brain
will quickly tell the body to take evasive action until the situation
There are two interesting points about the
critter brain. The first is that the critter brain does not
understand time nor does it see time as relevant. The critter
brain does not know the difference between you as a three year old and
you as a forty-three year old. This might be a problem if at
three years old you didn’t have it coded in your critter brain that
growing wealth with ease is survivable.
The second point
is that the data that the critter brain has coded to be survivable is
downloaded from your parents between conception and when you were about
four years old. This is how our parent’s beliefs can and often do
become our own beliefs. The early downloading of beliefs
the foundation of our survivable behaviors in regards to investing and
growing wealth. It’s interesting to note that these beliefs
not updated with the addition of new knowledge about the
Once the coding is complete (around four years old), new information is
pretty much ignored. The question, “Can I survive this?” is
answered by checking against the approved list of survivable situations.
critter brain will do everything in its power and it has a lot of
influence to turn the human in a direction that is known to be
survivable and safe. For example, if the critter brain
pattern in the woods that might be coded as a bear, it will immediately
tell the legs to run! Without thinking or processing, the
will move. As soon as the critter brain can answer “Yes” to
safe?” your legs will slow down.
It’s the same with the stock
market. If the critter brain notices that you are growing
AND it has never survived this before, then the critter brain will also
take evasive action to stop this from happening. Growing
like meeting a bear in the woods, is not coded as a survivable
Survivability is more important than logical
function for the critter brain. If you know that you are
something that does not help the growth of your money in the stock
market, this knowledge by itself will not change or affect your
behaviors. People continue doing the same things after they
acquired new knowledge teaching them to do otherwise, because their
critter brain is not allowing the new knowledge to be put into
let’s turn our attention to the other part of the brain, the human
brain. The human brain is the newest part of the brain that
up in front, known as the prefrontal cortex. This is the part
the brain that separates us from chimpanzees and all other mammals on
the planet. Its job is to provide high-level processing such
solving complex problems, providing rational thinking, and strategizing
long-term goals. We would like the human brain to be the one making our
investment choices. When we create situations that allow the human
brain to make investment choices, our money grows. But the human brain
can only make investment choices when the critter brain is not in the
Brain and the Human Brain – A Dysfunctional Family (or, “The Problem”)
of the critter brain and the human brain as independently owned and
operated communication systems. If there is any doubt by the
critter brain that a situation cannot be survived, it will run the
show. Running the show means it will go into “fight or
mode, and neither fighting nor fleeing is helpful to your brokerage
Said another way, the critter brain
will change the current situation until it can be coded as
survivable. Unfortunately, for many humans losing money has
coded as survivable, while GROWING money with ease is not
survivable. If you were born of parents that had it coded in
their belief system that being poor or losing money is survivable then
you as their offspring might also have this coded in your belief
The relevant belief systems may not be
specifically about money – other beliefs can get generalized to your
money situation. Your critter brain might have it coded that
staying with the crowd (just like it did 10,000 years ago on the
African plains) is safer than going against the crowd. This
true that the same part of the brain lights up when going against the
crowd as when the body is in physical pain. Interesting,
it? Are you starting to understand how the critter brain
working against you when you want to grow your money?
safe is the reason why human investors inadvertently buy at the top and
sell at the bottom. Buy what is hot. Buy what is
exciting. And, in the process of staying safe, you might
under-perform the S&P 500. An unmanaged S&P
fund beats 87% of the money managers in the world, because our critter
brain is wired to run with the crowd even if the crowd is losing
money. If you want different results from the crowd, this may
Both the critter brain and the human brain are good
at what they do because they learn very well. The critter
learns very quickly, early in your life, and then locks in that
learning to keep you safe for all eternity. The flip side to
is that it’s very difficult for the critter brain to unlearn.
Most of what the critter brain has learned about growing money doesn’t
work, and yet this is the basis of our instincts.
If you want a different experience, you will have to update your system
or recode your critter brain.
are left with two choices: 1) unlearn what you and your
have learned to be true (this may take years) or 2) create a situation
that eliminates the critter brain from sabotaging or playing a part in
your stock market decisions (this takes days).
You will want to
create a situation where the critter is not paying attention,
right? The way to eliminate the critter brain from
in the stock market is to eliminate the “triggers” or “patterns” that
the critter brain has coded to be not survivable. In the
investing world these patterns are called “investing biases.”
When we are stuck in an investing bias we are prevented from objective
planning; we become subjective and start guessing. This puts
critter brain in a situation where it needs to ask the question, “Can I
There are many investing biases, and some
of the most common are stress biases, future forward bias, reaction
bias, relationship bias, familiarity bias, story bias, self-attribution
bias, over-confidence bias, false-anchoring bias, news bias and
illusion of control bias. If you are human and born on planet
earth, regardless of how you earn a living, then you have these biases
already hardwired in your critter brain.
If these biases are
taken out of the investment conversation we eliminate the critter
brain’s influence. It stops even thinking of asking the
“Can I survive this?” and then your human brain can
There are four connected steps to eliminate investing biases.
four steps are simple but they must be done congruently to prevent the
critter brain from being triggered. Let me share one of them
If you want to bypass the critter brain you must limit
contact with the stock market or your individual positions to no more
than once a month. Let me tell you why. Losing money is coded
pain to the critter brain. Even if you are up by $5,000 in a
stock, if you then check your investment Monday morning and it is down
$100, this loss will be coded as pain and will carry a negative
weight. This weight is four times heavier than a win or
situation. This will then tell your critter brain that you
danger. When the critter brain is in danger it goes into
flight mode, and this will lead to actions that will not work for your
stock market portfolio. Under control of the critter brain,
human will do one of two things with its investments: 1) sell
winners way too fast or 2) keep its losers way too long.
choose to look at the market every day, hour, or week then in order for
your critter brain to have a positive experience you will have to be
winning five times more often than you are losing. The
probability of this is so low that it almost never happens.
best investors in the world only win 40% to 50% of the time, not 80% to
90% of the time. And so the solution is to limit your contact
with the stock market. Simple but not easy!
The three other
steps in combination with this one will manage your downside risk while
allowing the winners to keep growing. This will keep your
brain out of the loop and allow your human brain to make the choices
that you want it to be making.
Remembering back to this
change you will notice how well your money is now growing.
of you may be satisfied with your results from the stock
If you are, then keep doing what you are doing. For those of
that would like different results, you will be amazed at how one or two
small shifts can make the changes you want in your results, now.
The best is yet to come.
RC PECK, CFP®
Registered Investment Advisor
Founder of Fearless Wealth™
Simple Steps to Grow and Harvest
can grow your money in up and down markets regardless of where the
economy is headed and how little financial knowledge you have. Fancy
degrees do not matter. you need discipline, rules to follow and a
method that works. You have to have your money work hard for you once
you've earned it and this is where people fail.
books teaches methods that work!
For full information and/or to purchase Fearless
Wealth by RC Peck
One of Gandhi's followers once
exclaimed to him in exasperation:
"Gandhiji, I don't understand you. How can you say one thing
last week and something quite different this week?"
"Ah," Gandhi replied, "Because I have learned something since last
Declaration of Self Esteem
Esteem by Virginia Satir
I am Me. In all the world, there is no one else exactly like me.
Everything that comes out of me is authentically mine, because I alone
chose it -- I own everything about me: my body, my feelings, my mouth,
my voice, all my actions, whether they be to others or myself. I own my
fantasies, my dreams, my hopes, my fears. I own my triumphs and
successes, all my failures and mistakes.
Because I own all of me, I can become intimately acquainted with me. By
so doing, I can love me and be friendly with all my parts. I know there
are aspects about myself that puzzle me, and other aspects that I do
not know -- but as long as I am friendly and loving to myself, I can
courageously and hopefully look for solutions to the puzzles and ways
to find out more about me.
However I look and sound, whatever I say and do, and whatever I think
and feel at a given moment in time is authentically me. If later some
parts of how I looked, sounded, thought, and felt turn out to be
unfitting, I can discard that which is unfitting, keep the rest, and
invent something new for that which I discarded. I can see, hear, feel,
think, say, and do. I have the tools to survive, to be close to others,
to be productive, and to make sense and order out of the world of
people and things outside of me. I own me, and therefore, I can
engineer me. I am me, and I am Okay.