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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


Mad Money and Mark Twain

Here’s another good investment book that has nothing to do with picking stocks, reading economic tea leaves or trading your way to riches. It’s called Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich by Jason Zweig. It came out a few years ago, and while anything titled “help make you rich” normally gives me pause, as the markets and economy bounce roughly along, I actually think it’s more pertinent that ever.

The book breaks down our emotions into several categories. The big one is greed – or more specifically, the observation that humans enjoy the anticipation of something more than actually acquiring something. This feeling is hardwired into our brains, for every single one of us. It was built into our brains genetically many, many moons ago, and actually helped us survive as a species. Now, though, the instinct hurts us – at least as far as investing goes.

Zweig speaks of Mark Twain. Twain wrote about greed in his excellent story “The $30,000 Bequest,” which was about a happy couple who learn of an inheritance, dream of the riches they’ll have…and then die from grief when it doesn’t materialize. But the author himself never really seemed to learn the lesson he was teaching.

Mark Twain spent his life bouncing from one get-rick-quick scheme to another until his later years – when he was broke. Why? Zweig thinks it dates to Twain’s early adulthood, when he was a miner, and a big ole’ silver find that didn’t quite turn out for him.

Bad for Twain, but great for American literature, I suppose.

Zweig wrote, “Twain must have been driven to relive the visceral excitement he had felt in 1862 when he hit that giant silver vein in Virginia City. That memory kept his anticipation circuitry in overdrive whenever he though about money. The result was a lifelong, compulsive craving for the big score that sent Twain on wild swings from wealth to debt to bankruptcy and back again.”

How does Zweig say to avoid this in our lives?

“Lock up your mad money and throw away the key”. Also, “control your cues” – meaning learn what turns you on in the investing sense, and then to find a way to “think twice” before acting on any of those impulses. In other words be less like Pavlov’s dog, and more like a rationale investor.

Or, as Ben Graham used to say, “Buy stocks the way you buy groceries, not the way you buy perfume.”