Preface

Mean Markets and the Lizard Brain proposes applying the new science of irrationality to personal investing. Conventional financial advice is based on the assumption that both markets and investors are rational. However, new research shows that the behavior of investors and real markets is often characterized as reckless. These studies give rise to the search for new ways and directions of investment.

This book brings together two of my passions: financial markets and the scientific study of human nature. I had my first experience of financial speculation at the dawn of the 1980s. Due to litigation regarding the use of hazardous asbestos, the stock price of Johns Manville Corporation fell to almost zero. I thought the price was irrationally low, so I bought some of the shares. The day after the purchase, their rate increased by 20%. I sold the shares, making a profit from the transaction equal to my usual income for several weeks of work.

This experience had two consequences for me. Firstly, I got a taste for operations in financial markets. Since then, I have been actively investing for over 20 years, including options, bonds, gold, currencies, etc. in my arsenal of instruments. Secondly, I was puzzled by the fact that the market offers extremely profitable opportunities for almost free of charge, which ended up being Marwille shares (Warren Buffett also saw an opportunity here and subsequently purchased the company).

Years later, while earning a doctorate in economics from Harvard University, I became interested in the study of human nature. First as a graduate student and then as a professor of economics at Harvard, I have been searching for more than a decade to answer the main question: Why do people have problems in so many areas, including food, sex, money? My search took sometimes bizarre turns, including assessing the testosterone levels of negotiators and working at an African research station studying the behavior of wild chimpanzees.

I have come to believe that an important source of human problems is our inner nature, which is best suited to solve the problems that our primitive ancestors faced. Because modern industrial society is radically different from the world of our ancestors, we constantly get into trouble. My first book, Mean Genes, co-authored with Jay Filene, explores how the human brain, which evolved during the Pleistocene, contributes to obesity, drug addiction, and poverty.

This book, Mean Markets and the Lizard Brain, covers one of the topics covered in the first book in much more detail. What mistakes are most typical for people’s activities in financial markets and how can an investor improve their results? The titles of both books contain the adjective "mean" as each explores those aspects of human activity where our instincts set us up to fail. The conflict between our emotions and goals is a central feature of existence in the industrial age. That's why the world sometimes looks mean.

Markets can also appear mean to an investor who buys on positive emotions and sells on fear. Because we are designed to live in a completely different world, our instincts are not designed to seek out financially rewarding opportunities. Therefore, to achieve financial success, it is necessary to understand and block the part of our brain that pushes us to make losing investment decisions. This “lizard brain,” which is present in each of us and hides behind the more rational parts of the brain, does an excellent job of finding food and shelter, but is completely unsuitable for investment activities.

Thus, Mean Markets and the Lizard Brain answers my question from twenty years ago. Markets are irrational due to the vagaries of human nature. Those who understand this and suppress their lizard brain will have the opportunity to make money in the sneaky markets.

For ten years, Jay Filen and I debated the inadequacy of the Pleistocene brain to modern industrial society. As is often the case with such collaborations, most of the ideas became joint products. The basic concepts of the book “Mean Markets and the Lizard Brain” are a shared achievement of Jay and me. But Jay also deserves special thanks for various important aspects of this book, from structure to writing style. They are carried over into Mean Markets from another book we co-wrote, Mean Genes.

Many of my friends took the time to read drafts and provide valuable criticism. Doug Bodenstab read and critically analyzed each chapter (some even more than once). Professional physicist Chris Corcoran helped me at every stage, ensuring that the math behind Mean Markets was correct. John Goldberg's common sense and wealth of experience as a trader, as well as his very relevant analogies from the world of golf, also turned out to be very useful. Jay Filen asked difficult questions and often found the right answers himself.

I am also grateful to those who read the book only partially, but made a significant contribution to its appearance. This is David Baer, ​​Jeff Bodenstab, Peter Borish, Jane Burnham. Thomas and Marie Burnham, Judith Chapman, Adam Ceci, David Epstein, Brent Flewelling, Sue Flewelling, Lisa Gosselaar, Paul Greenberg, Brian Hare, Justin Holtzman, Matthew McIntyre, Michael Schwartz, Joel Smith, Martin Stapleton, Scott Stevens and Sadek Wahba. Danielle Lake did a fantastic job editing the manuscript.

Pamela Van Gissn, my editor at the publishing house Wiley, deserves especially deep gratitude. Throughout the history of this book, from conception and development to actual writing and publication, Pamela has been instrumental in helping me make this book both practical and academically rigorous. And thanks to Peter Borish for introducing me to Pamela.

At every stage of the book, my wife, Barbara Lee Smith, remained a loyal supporter, and her encouragement made my work a joy. Without her thoughtful advice and selfless help, this book would not have been published. And finally, I found daily inspiration in our beautiful, newly born daughter, Charlotte Valentine.

Thank you all, Terry

Chapter 1 Introduction

Vile markets and the lizard brain

What should we invest our money in?

What should I invest my money in? This question was asked by Adam, a former student of mine at Harvard Business School. After receiving a Master of Business Administration (MBA) degree, he soon found a job at an investment bank. Because Adam learned a lot about debt-ridden companies there, he became somewhat skeptical about the current economic situation. After listening to his thoughts on this matter, I asked where he invested his money. And he was quite surprised to hear that the young man invested 60% of his savings in stocks. A strange decision, considering the disappointing economic forecast he formulated. My puzzled look made Adam ask me for advice.

Clearly, the young man believed that he was following a conservative (i.e., cautious) strategy, investing only 60% of his savings in stocks. Hasn't the history of the stock market, going back hundreds of years, proven conclusively that stocks provide the best returns over the long term? Shouldn't a patient investor, especially a young one, invest almost all of his savings in stocks?

Maybe it should. Or maybe not. The traditional answer to Adam's question is based on the old-school assumption that people are cold-blooded strategists and financial markets are rational. But recently a new school has emerged that sees too strong human emotions as a key driving force in our world. The reality is that financial markets have always swung like pendulums from euphoria to panic, and people have tried to recognize these phenomena in advance without much success. The new “science of irrationality” offers a different way to model the future and provides the investor with powerful tools for increasing and protecting his wealth.

Our book doesn't just describe financial irrationality - it reveals the reasons for the ineffective behavior of investors, which costs them too much. I attribute this behavior to the activity of the “lizard brain,” an ancient, often unconscious mental process that has a powerful influence on people’s actions. This brain has always helped humans in procreation, finding food, and survival, but it is much less effective when working in financial markets. As a result, these markets turn out to be “sneaky” because they deprive investors of their money.

The book is capable of revolutionizing the understanding of economics in general and the financial world in particular, both for ordinary people far from these areas, and for professionals. It reveals the biological causes of irrational human behavior and explains their impact on investment preferences. The author gives specific practical advice on what to follow when purchasing shares, bonds, currency, gold, real estate, and obtaining loans and deposits. Recommendations will help you get rich or at least achieve material well-being.

The book will be of interest to anyone interested in the problems of stock trading, and to those who want to understand the peculiarities of human behavior in the stock and financial markets, seeing them from an unusual perspective.

On our website you can download the book “Mean Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Manias, Panics and Crashes in Financial Markets” by Burnham Terry for free and without registration in fb2, rtf, epub, pdf, txt format, read book online or buy a book in an online store.

Sneaky Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Manias, Panics and Crashes in Financial Markets Terry Burnham

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Title: Sneaky Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Manias, Panics and Crashes in Financial Markets
Author: Terry Burnham
Year: 2001
Genre: Securities, investments, Personal finance, Foreign business literature

About the book Mean Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Financial Market Manias, Panics, and Crashes by Terry Burnham

The book is capable of revolutionizing the understanding of economics in general and the financial world in particular, both for ordinary people far from these areas, and for professionals. It reveals the biological causes of irrational human behavior and explains their impact on investment preferences. The author gives specific practical advice on what to follow when purchasing shares, bonds, currency, gold, real estate, and obtaining loans and deposits. Recommendations will help you get rich or at least achieve material well-being.

The book will be of interest to anyone interested in the problems of stock trading, and to those who want to understand the peculiarities of human behavior in the stock and financial markets, seeing them from an unusual perspective.

On our website about books lifeinbooks.net you can download for free without registration or read online the book “Mean Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Manias, Panics and Crashes in Financial Markets” by Terry Burnham in epub, fb2, txt, rtf, pdf for iPad, iPhone, Android and Kindle. The book will give you a lot of pleasant moments and real pleasure from reading. You can buy the full version from our partner. Also, here you will find the latest news from the literary world, learn the biography of your favorite authors. For beginning writers, there is a separate section with useful tips and tricks, interesting articles, thanks to which you yourself can try your hand at literary crafts.

The book is capable of revolutionizing the understanding of economics in general and the financial world in particular, both for ordinary people far from these areas, and for professionals. It reveals the biological causes of irrational human behavior and explains their impact on investment preferences. The author gives specific practical advice on what to follow when purchasing shares, bonds, currency, gold, real estate, and obtaining loans and deposits. Recommendations will help you get rich or at least achieve material well-being.

The book will be of interest to anyone interested in the problems of stock trading, and to those who want to understand the peculiarities of human behavior in the stock and financial markets, seeing them from an unusual perspective.

Characteristics of the book

Date written: 2008
Title: : How to make money using knowledge about the causes of manias, panics and crashes in financial markets

Volume: 420 pages, 45 illustrations
ISBN: 978-5-699-24328-0
Translator: A. Yu. Zayakin
Copyright holder: Eksmo

Preface to the book “Mean Markets and the Lizard Brain”

Mean Markets and the Lizard Brain proposes applying the new science of irrationality to personal investing. Conventional financial advice is based on the assumption that both markets and investors are rational. However, new research shows that the behavior of investors and real markets is often characterized as reckless. These studies give rise to the search for new ways and directions of investment.

This book brings together two of my passions: financial markets and the scientific study of human nature. I had my first experience of financial speculation at the dawn of the 1980s. Due to litigation related to the use of asbestos, which is hazardous to human health, the stock price Johns Manville Corporation dropped to almost zero. I thought the price was irrationally low, so I bought some of the shares. The day after the purchase, their rate increased by 20%. I sold the shares, making a profit from the transaction equal to my usual income for several weeks of work.

This experience had two consequences for me. Firstly, I got a taste for operations in financial markets. Since then, I have been actively investing for over 20 years, including options, bonds, gold, currencies, etc. in my arsenal of instruments. Secondly, I was puzzled by the fact that the market offers extremely profitable opportunities for almost free of charge, which turned out to be shares Manville(Warren Buffett also saw an opportunity here and subsequently purchased the company).

Years later, while earning a doctorate in economics from Harvard University, I became interested in the study of human nature. First as a graduate student and then as a professor of economics at Harvard, I have been searching for more than a decade to answer the main question: Why do people have problems in so many areas, including food, sex, money? My search took sometimes bizarre turns, including assessing the testosterone levels of negotiators and working at an African research station studying the behavior of wild chimpanzees.

I have come to believe that an important source of human problems is our inner nature, which is best suited to solve the problems that our primitive ancestors faced. Because modern industrial society is radically different from the world of our ancestors, we constantly get into trouble. My first book, Mean Genes, co-authored with Jay Filene, explores how the human brain, which evolved during the Pleistocene, contributes to obesity, drug addiction, and poverty.

This book, Mean Markets and the Lizard Brain, covers one of the topics covered in the first book in much more detail. What mistakes are most typical for people’s activities in financial markets and how can an investor improve their results? The titles of both books contain the adjective "mean" as each explores those aspects of human activity where our instincts set us up to fail. The conflict between our emotions and goals is a central feature of existence in the industrial age. That's why the world sometimes looks mean.

Markets can also appear mean to an investor who buys on positive emotions and sells on fear. Because we are designed to live in a completely different world, our instincts are not designed to seek out financially rewarding opportunities. Therefore, to achieve financial success, it is necessary to understand and block the part of our brain that pushes us to make losing investment decisions. This “lizard brain,” which is present in each of us and hides behind the more rational parts of the brain, does an excellent job of finding food and shelter, but is completely unsuitable for investment activities.

Thus, Mean Markets and the Lizard Brain answers my question from twenty years ago. Markets are irrational due to the vagaries of human nature. Those who understand this and suppress their lizard brain will have the opportunity to make money in the sneaky markets.

What should we invest our money in?

What should I invest my money in? This question was asked by Adam, a former student of mine at Harvard Business School. After receiving a Master of Business Administration (MBA), he soon found a job at an investment bank. Because Adam learned a lot about debt-ridden companies there, he became somewhat skeptical about the current economic situation. After listening to his thoughts on this matter, I asked where he invested his money. And he was quite surprised to hear that the young man invested 60% of his savings in stocks. A strange decision, considering the disappointing economic forecast he formulated. My puzzled look made Adam ask me for advice.

Clearly, the young man believed that he was following a conservative (i.e., cautious) strategy, investing only 60% of his savings in stocks. Hasn't the history of the stock market, going back hundreds of years, proven conclusively that stocks provide the best returns over the long term? Shouldn't a patient investor, especially a young one, invest almost all of his savings in stocks?

Maybe it should. Or maybe not. The traditional answer to Adam's question is based on the old-school assumption that people are cold-blooded strategists and financial markets are rational. But recently a new school has emerged that sees too strong human emotions as a key driving force in our world. The reality is that financial markets have always swung like pendulums from euphoria to panic, and people have tried to recognize these phenomena in advance without much success. The new “science of irrationality” offers a different way to model the future and provides the investor with powerful tools for increasing and protecting his wealth.

Our book doesn't just describe financial irrationality - it reveals the reasons for the ineffective behavior of investors, which costs them too much. I attribute this behavior to the activity of the “lizard brain,” an ancient, often unconscious mental process that has a powerful influence on people’s actions. This brain has always helped humans in procreation, finding food, and survival, but it is much less effective when working in financial markets. As a result, these markets turn out to be “sneaky” because they deprive investors of their money.

Below we apply the new science of irrationality and the concept of the lizard brain to assess the prospects for investing in bonds, stocks and real estate. We will see that the current situation in the mid-2000s is an almost perfect example of an economic storm that can ruin any financial plans. However, this situation also offers unexpected answers to the question posed by Adam. We will show not only what invest, but also How, Moreover, these will be completely innovative recommendations. In addition to demonstrating ways to grow an investor's wealth, this book aims to increase his confidence and reduce his financial stress.

Sneaky Markets and the Lizard Brain: How to Make Money Using Knowledge of the Causes of Manias, Panics and Crashes in the Financial Markets - Terry Burnham (download)

(introductory fragment of the book)