The Reptilian Brain and Investing. - Pondering Decisions Not Like a Lizard

So we all know there are many reptilian jokes about our lawyer and politician friends, some deserved and others not. Thinking of this put me in mind that in the realm of investing, the ancient part of our brain, often referred to as the reptilian brain, plays a crucial role in how we react to financial threats and opportunities. This segment of our brain, responsible for our survival instincts, governs the fight or flight response—a mechanism that can be both a boon and a bane for present-day investors.

The reptilian brain, also known as the basal ganglia, is the oldest part of the human brain. It is in charge of our most primal instincts, such as aggression, dominance, territoriality, and ritual displays. When it comes to investing, this part of the brain can cause us to make impulsive decisions based on fear or greed—emotions that are not always aligned with rational financial planning.

The fight or flight response is triggered by the amygdala, which sends signals to the hypothalamus, leading to the release of stress hormones like cortisol. These hormones prepare the body to either confront or flee from perceived threats. In the context of investing, a sudden market downturn can trigger this response, prompting investors to sell off assets in a panic, often at a loss.

However, successful investing requires a calm, long-term approach, which is at odds with the quick, reactive nature of the reptilian brain. To overcome this, investors must engage the neocortex, the part of the brain associated with higher-order thinking skills, such as analysis and planning. This allows for a more measured approach to investing, one that considers the bigger picture and resists the urge to react to every market fluctuation.

One way to manage the fight or flight response is through mindfulness and cognitive behavioural techniques. By recognising the emotional triggers and reframing the situation, investors can prevent the reptilian brain from taking over during stressful financial decisions. For instance, instead of viewing a market correction as a threat, it can be seen as a natural part of the economic cycle and an opportunity to buy undervalued assets.

While the reptilian brain has helped humans survive for millennia, its fight or flight response can be detrimental to modern investing strategies. By understanding this primal reaction and learning to manage it, investors can make more informed decisions that align with their long-term financial goals. It’s not about suppressing our instincts but rather about recognising when they serve us and when they don’t. In the intricate dance of investing, mastering the steps to control our inner lizard can lead to a performance that’s both profitable and poised.

There is no doubt that we will yet again and again go through these scenarios of fight of flight with investing especially with major political and emotional events.  My role as a Fiduciary Financial Adviser and Steward of my client’s wealth is to remain steadfast and claim and engage the neocortex keeping us true to their goals and the financial plan.  Inspiring confidence and a peace of mind that makes our lives we dance much more enjoyable.

• Bruce Jenks is a financial adviser at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver scheme solutions. Article No 374.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz