Are You Letting Your ‘Lizard Brain’ Control Your Investments? Here’s How to Tame It!

When the market swings wildly, it can stir up powerful emotions. A flash of excitement at a hot tip or a surge of fear in a market plunge can tempt even seasoned investors into impulsive decisions, which often lead to avoidable losses. This emotional response isn’t just a lack of self-control; it’s rooted in what’s called the “lizard brain” phenomenon — the primitive, reactionary part of our brain wired for survival.

While this instinct helped our ancestors respond to threats, in investing, it can backfire by interpreting financial dips as physical danger, triggering us to act without full rationality. Here’s a closer look at lizard-brain investing and how you can tame it to make more thoughtful, profitable decisions.

What is Lizard Brain Investing?

The term “lizard brain” refers to the limbic system, the oldest part of our brain, responsible for fight-or-flight responses. When we face a potential financial loss, this part of the brain processes it as an immediate threat. This often results in a “react first, think later” approach — leading us to panic-sell in a market drop or buy impulsively based on a trend. But recognizing these instincts and managing them is essential to avoid rash decisions that could hurt your portfolio.

How to Tame Your Lizard Brain?

While it may seem tough to overcome these instincts, practicing emotional awareness and patience can empower you to make more rational choices. Here are some strategies to keep your lizard brain in check:

1. Reset Your Emotions

If you’re frustrated about missing a market rally, remember that this feeling is normal. Don’t dwell on the “what-ifs.” Instead, look forward. Seek out stocks with strong fundamentals that haven’t yet peaked, rather than rushing into a reactive buy.

2. Reframe the Problem

In a market downturn, many see only doom and gloom. However, steep price drops often present unique opportunities. Consider adopting a contrarian strategy by purchasing stocks with sound fundamentals while they’re undervalued. This reframing helps you see volatility as a potential benefit, not a threat.

3. Shift Your Perspective

Detach yourself emotionally by evaluating the situation from a neutral point of view. If one of your stock investments has taken a hit, review the company’s fundamentals. If your research indicates that the business remains strong, ask yourself: “Is this a chance to buy more at a lower price?” 

4. Give Yourself Space

Taking a pause allows your rational mind to regain control over impulsive tendencies. Avoid making instant decisions; instead, give yourself some mental breathing room. This lets your logical mind work through the situation, balancing short-term emotions with long-term goals.

The Takeaway

Investment success isn’t just about picking the right stocks; it’s also about keeping your emotions in check. By consciously resetting your perspective, reframing challenges, and stepping back before acting, you can master the art of taming your lizard brain. With time and practice, you’ll build the patience and discipline necessary to ride out the highs and lows of the market — and come out stronger on the other side.

Source: Morning Star

Date: Jul 5, 2024

Disclaimer: This blog has been written exclusively for educational purposes. 

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