As a human, we all want to make better decisions and a book called How We Decide by Jonah Lehrer, Houghton Mifflin Harcourt, NY, 2009 discusses this issue. Within the book is a number of stories about the decisions people make and how the decisions are made or were thought to be made. One of the examples is the football quarterback finding the open receiver in seconds. In this series of downs the quarterback within seconds found the open man after seeing the others were covered. Part of the reason he could do what he did is the past study of game film to help correct the things he did wrong or he learnt from his mistakes. Perhaps after seeing the things he knew were impossible, he saw the possible and it felt the right thing to do. Nobody is 100% positive, but he pass was caught, which put the team in a position to win the game but part was learning from the past, part was emotion – it felt right, and part was chance.

If you listen to basketball, you know the expression – x has the hot hand today, Most of us believe the expression, however the evidence says it does not work, Those that believe they have a hot hand, often shoot more, but the shots from a percentage point of view get riskier. When the shooter thinks he is cold, he takes more higher percentage shots which should go in or less riskier shots.

In the stock market, the only perfect information is the past information. The stock market is a classic example of a random system. The past movement of the stock can not be used to predict the future movement. However our brains try to impose a rational pattern or meaningful trends. The example is if you invested and your stock went up, instead of focusing of what went right, we focus on the profits missed, we could have bought more or used leverage to buy even more. If if your stock lost money, you focus on the money lost and race to dump assets. The lesson is it is silly to try to beat the market with your brain. Your dopamine neurons were not designed to deal with random oscillations of Wall Street. This is why in the long run a randomly selected stock portfolio often beats the experts. Since the market is a random walk with an upward slope – one of the best solutions is to buy a low-cost index fund and wait. Patiently. Do not fixate on what might have been or obsess over someone else’s profits. The secret of the stock market is there is no secret  – the world is more random that we can imagine, that is what our emotions can not understand.

Linking to dividend paying stocks, learning from your past investments allows you to make better investments in the future.

There are more questions than answers, till the next time – to raising questions.