Investing has a problem…

Investing has a problem. Actually, to be more specific, investors have a problem. See, humans are drawn to things that are …

A share market investment manager monitors share price movements on his mobile phone and laptop

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Investing has a problem. Actually, to be more specific, investors have a problem.

See, humans are drawn to things that are fun. We want to do them again and again because it sparks the release of chemicals in our brain.

Sometimes, the result is joy, like when our shares go up. Other times, it’s closer to the doom loop that a problem gambler gets into.

Most of the time, it’s the ‘grown up’ version of the PlayStation or the Xbox. Full of little micro-rewards, and designed by people who know precisely what chemical ‘buttons’ to push in our brains to keep us coming back.

(Yes, yes… I know adults play on those consoles, too. You know what I mean.)

One of my most/least favourite features of smartphone games these days is the need to wait for a prescribed period of time before playing again.

(Favourite, because I appreciate the thinking. Least favourite because I think it’s borderline destructive, morally speaking.)

One game I’ve played makes you wait an hour or so until your ‘troops’ are re-trained. Another doesn’t give a reason, but after you’ve played it for a while you have to wait until your ‘energy’ is restored.

You wouldn’t think that making you wait is conducive to creating addiction, but it’s training your brain to look forward to the next ‘hit’.

And yes, I use that term deliberately.

See, what most people don’t know about game designers is that they deliberately screw with our innate psychology. They know what makes us tick. They know what to do to get us, like Pavlov’s dogs, to behave exactly the way they want.

Social media is precisely the same. Why does Facebook have “stories”? Because they’re only there for a short time, and unless you log on, you’ll miss them.

So, we log on more often. It constantly tweaks its algorithms to entice us to hang around longer.

Have you ever thought “You know, I think I should spend longer on Facebook today?” 

Me either.

And yet we do.

That’s the subtle manipulation of our brains at work… and we don’t even notice it when it’s happening. Which takes me back to investing.

Many (most) brokers, with very few notable exceptions, are trying to get you to trade. More.

Why? Because that’s how they make their money.

Literally, the platform you use to invest is trying to undermine you.

Oh, they won’t call it that. They’d say they’re providing you with ‘freedom’, ‘options’ and ‘choices’.

If you think that sounds like “guns don’t kill people, people kill people”, you’re on the right track.

The brokers send you reports. Market updates. They offer to send you emails or SMS’ when stocks hit a certain level.

They tell you you’re smart. Capable. And reward you for activity.

But you know what doesn’t correlate with great investing?

Activity.

If your broker really cared about you, they’d send you an email offering to withdraw their alerts, in your interest.

They’d offer you rewards for not trading.

But for most, that’s not in their interest.

Now, if that makes some brokers sound more like bookies than wealth platforms, again you’re on the right track.

I don’t blame them, per se. They’re just trying to make a buck. But let’s call a spade a bloody shovel, shall we?

Like insurance salesmen of old (and some financial planners of the not-too-distant-past), incentives matter.

And you need to know that there are subconscious parts of your brain that people actively tap into, usually without you realising, to tempt you to do things that are unhealthy… and even create ready-made justifications for when people like me point it out.

Ironically, we are our manipulators’ greatest defenders.

Why?

One word: Ego.

We refuse to accept that we’re being manipulated.

Because to do so would undermine our own self-perception and self-worth.

If I’m smart, and capable, and worldly (or world-weary), then I can’t admit I’ve been dudded.

So I rationalise my actions. 

I tell myself that your trading might be because you’re being manipulated, but mine is deliberate and smart.

Because I’m not like you. I’m too clever to be manipulated.

Yeah, sure.

None of us is that smart. Because, by definition, it’s not a question of intelligence.

It’s a question of humility.

Psychologists know this.

We can either accept it humbly or bluster along, proudly. If I had to bet on either group, you couldn’t offer me large enough odds to put my money on the latter.

If the first step is accepting we have a problem, then repeat after me: I have a problem.

It’s a problem we can’t prevent. 

We can only minimise its impact, and triage the consequences. One way I try to do that is to split investing into its parts.

I love investing.

But I remind myself that the ‘game’ is the business analysis, not the share price movements.

I focus on looking for winning businesses, not speculating on share price movements.

I tell myself — repeatedly — that today’s price action is irrelevant. So is this weeks. And this month. It’s the equivalent of trying to predict the result of a tennis match each time one player or the other hits the ball.

One shot is not a point.

One point is not a game.

One game is not a set.

One set is not a match.

Every single player loses points.

Every single player loses games.

Every single player loses sets.

Every single player loses matches.

Can you imagine predicting Roger Federer’s career trajectory by looking at his last return of serve?

By the last point, game or set he lost? Or the first?

And yet, we slavishly watch share prices, refreshing our brokerage feed each minute, hour or day.

Feel silly yet?

That’s not my aim (a bloke doesn’t keep readers by insulting them!), but I do want you to really think about your own investing.

See, you can make a game out of business analysis. 

(Arguably you should, to keep it interesting.)

But you shouldn’t make one out of share price movements. Or, if you must, please remember that it’s a 26-mile marathon. A 5-day Test.  A bottom-of-the-ninth thriller.

It’s not Twenty20.

And it’s not the second point of the third game of the first set.

The Sirens will sing to you. You must resist their call.

Tie yourself to the metaphorical mast, if you must.

(One pro tip: make your brokerage password an unintelligible combination of letters, numbers and characters that’s hard to remember, and put the password somewhere that takes effort to get. It’ll stop you mindlessly logging on too easily!)

Enjoy your investing. But don’t turn it into a daily exercise in price-watching.

That is the way of shipwrecks.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned.  The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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