Posts filed under “Apprenticed Investor”

Do You Have a ‘Risk-Taking’ Brain ?

This time of year, many investors are looking at their asset allocation, and stock selection.

Perhaps they should be asking themselves, “How dense are my dopamine receptors?”

As it turns out, some people process the brain’s “reward” chemicals differently, depending upon the number of receptors they have,

The BBC reported on a recent study by Professor David Zald
of Vanderbilt University. They noted:

“Scientists say they have found physical evidence of brain differences which may drive “thrill-seekers” to act impulsively or dangerously.

A small study from Vanderbilt University in the US found the biggest “risk-takers” processed a brain “reward” chemical dopamine differently. Scans spotted fewer “receptors” for the chemical on the cells which make it.

The Journal of Neuroscience study could help explain why some are vulnerable to drug abuse and other addictions. . . . Just as in animals, a propensity towards thrill-seeking, spending money freely, and spontaneity, could be linked to lower levels of autoreceptors.

As it turns out, the same cells that produce the dopamine also have a self-regulating system respond to rising levels of the hormone by reducing its production. Preliminary research now suggests that those of us with  lower levels of autoreceptors have tendencies towards greater risk taking — spending money freely, thrill-seeking, engaging in spontaneous actions.

What does this mean for investors and traders?

A few things. It goes back to one of our favorite trader admonitions: Know Thyself. All investors should have a good handle on their own personalities, and adjust their strategy and tactics to their own personality, risk tolerances, and natural tendencies.

Rather than make resolutions you won’t keep, try something different this year. Figure out your own brain tendencies — including personality type. Don’t try to become something you are not, and instead, adapt to your own physiology. If you are impulsive, map out an investment strategy that includes handling this part of yourself.

Some people have had success setting up a sequestered, smaller, “thrill” account for trading. Any impulsive trades should be in the fun account, measured in percentages, not dollars. Keep your dopamine-seeking trades here — put and call options, hail marys, shots in the dark — and make sure these trades remain separate from your long term retirement monies.

Your investment returns will thank your brain chemistry for it.


Apprenticed Investor: Know Thyself
The, May 03, 2005

Evidence of ‘risk-taking’ brain
BBC, 31 December 2008

Professor David Zald
Vanderbilt Faculty Home Page

Midbrain Dopamine Receptor Availability Is Inversely Associated with Novelty-Seeking Traits in Humans
David H. Zald, et. al.
The Journal of Neuroscience, December 31, 2008

Dopamine Transmission in the Human Striatum during Monetary Reward Tasks
David H. Zald, et. al.
The Journal of Neuroscience, April 28, 2004

Category: Apprenticed Investor, Psychology, Science, Trading

What Was Most Surprising About Writing ?

A friend asked me an interesting question over the weekend: What was the thing about writing the book that surprised you the most? Lots of things about the process were pretty much as I expected. The deadlines, the structural changes, the battles with publishers/editors — were all pretty much as you would imagine. The importance…Read More

Category: Apprenticed Investor, Bailout Nation, Film, Intellectual Property, Psychology, Television

10% Intraday Swing

No one knows the future, but we can play the odds when they are in our favor. Today was one of those days. What was looking like a shaky retest now looks like a reverse head & shoulders low (or a triple bottom). For those of you who have been paying attention to both the…Read More

Category: Apprenticed Investor, Markets, Technical Analysis, Trading

Retest of the October Lows

Markets have come increasingly close to their October 10th lows. Contrary to what you may have read or heard on TV, this is precisely as it should be. Why? Major lows get retested. That is a basic tenet of market behavior, and crowd psychology. (This has been verified by a variety of studies by different…Read More

Category: Apprenticed Investor, Markets, Psychology, Technical Analysis, Trading

The Death of Buy and Hold

click for video


Note my 5 stages of grief meme has taken hold:

The five stages of death are denial, anger, bargaining, depression and finally, acceptance. We bring it up, because right now, Wall Street is really struggling with that last one, acceptance.

We’re talking about the death of that time honored investment strategy, buy-and-hold. Investors just can’t let go, and they need to.

Thanks to black October, the S&P 500 has now lost a fifth of its value over the last 10 years. According to Jeff Macke, “2008 is the year that will go down in history as the year that long term investment died as a thesis.”

And that means it’s time to move on.

But just because buy-and-hold is pretty much dead and buried, that doesn’t mean you can’t make money anymore.


The Death of Buy and Hold
Lee Brodie

Category: Apprenticed Investor, Investing, Markets, Psychology, Video

Questions For Your Financial Advisor

Category: Apprenticed Investor, Trading

Lose the Wall Street Research MSMedia Blogs

Category: Apprenticed Investor, Financial Press, Psychology, Weblogs

Bob Farrell’s 10 Rules for Investing

Category: Apprenticed Investor, Contrary Indicators, Investing, Markets, Psychology, Short Selling, Trading

Is the Market Still a Future Indicator?

Category: Apprenticed Investor, Hedge Funds, Markets, Trading, Valuation

Lessons Learned From A Dangerous Year

Category: Apprenticed Investor, Economy, Markets, Trading