Your Brain is the Worst Investor in the Room — ft. Scott Nations
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Today's number? 67,000. That's how many miles per hour the Earth travels around the Sun. Astronomers tried for centuries to understand the Sun, including where it goes at night, but eventually it dawned on them.
Listen to me. Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.
Welcome to Profiteer Markets. Scott is still away. He will be back on Monday, but we have a great interview today. We have been spending a lot of time this year thinking about how to invest in 2026. We've been hearing the bull case. We've heard the bear case. Still, it is hard to know what to think. So today we are talking to someone who spent his whole career studying this stuff. He's also written a book on how to invest in uncertain times. He's also written another book about US market crashes. So we're very excited to speak with him. We're going to get into it now. This is our conversation with Scott Nations, president of Nations Indexes and author of The Anxious Investor. Scott, thank you very much for joining me on Profiteer Markets.
Thanks for having me. So a lot we want to get into here. I want to start with some concepts from your book, and then I want to sort of think about how we can apply these ideas to markets and how we can think about investing in 2026. But let's just start with your book. The opening line from The Anxious Investor is, quote, the human brain is ill-suited for making wise investment decisions. I love that. Why? Why is the human brain so bad at making investment decisions? The simple explanation is that investing is relatively new and evolution is not. And so human beings evolved when they faced very different decisions versus, you know, what should I do with my portfolio or that sort of thing. And let's face it, that for 100,000 years when humans were on the savanna,
They had to become loss-averse or risk-averse, two different things, but they're related. Because the cost of making the right decision or the benefit for making the right decision would be relatively small. You might get that night's meal. But the cost of making a wrong decision could be catastrophic. And so we've evolved and we've been socialized in ways that just are not really compatible with making great investment decisions. And as I was writing the book and researching the behavioral biases that we all display, it dawned on me that of the 14 or 15 I talk about in the book, none of them, not a single one, Ed, makes you a better investor. They all make you better. a poor investor. They all hurt investment returns.
And so that's why that is the case, because these biases were created hundreds of thousands of years ago in some cases. But unfortunately, investing is relatively new. the piece of data that you point out, and this is from Vanguard, which I find fascinating, is that behavioral biases, these biases that you talk about, on average, they reduce returns by 150 basis points per year. So that's minus one and a half percent because of whatever these evolutionary behavioral biases built into the human brain are. What are some of these biases? You mentioned loss aversion, risk aversion.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–10:24
2
Why is the human brain poorly suited for investment decisions?
10:24–11:11
3
How does loss aversion influence investment choices?
11:11–22:53
4
What are common behavioral biases that affect investors?
22:53–24:48
5
What is the disposition effect and how does it impact investors?
24:48–52:57
Speakers
3 identifiedMore from Prof G Markets
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