[Applause]
how many of you came into this world
with nothing can I see your hands should
be most of them right good now keep your
hands up if you still have most of it 27
years ago I began my career as a
financial advisor and I want to figure
out why some people succeed financially
and others don’t and I think the most
important lesson I’ve learned from the
field of neuro economics is this
emotions can be hazardous to your wealth
seeing neuro economics tries to combine
neuroscience economics in psychology to
better understand how our minds work
when it comes to managing money and it’s
not that emotions are bad the problem is
when we don’t recognize the influence
emotions have on our decision-making
process especially when it comes to
money and this leads to what I call
financial misbehavior financial
misbehavior is when smart successful
people much like you use gut feelings
and emotions instead of logic to make
important financial choices and this in
turn leads to lower investment returns
unnecessary spending and a lower net
worth it can go beyond the money and
impact how we feel about ourselves
impact our relationships and our overall
well-being I think we all know that the
brain has basically two parts the
logical side and emotional side and that
is an oversimplification but for the
purpose of this talk it works
the emotional side wants two primary
things to get pleasure or void pain
right now right I’ve been there before
haven’t we okay Nobel Prize winner
Daniel Kahneman said that as much as
possible our brains will push choices
into the emotional side instead of
logical side it’s easier it’s faster and
uses less energy it’s also a built-in
defense mechanism developed since the
beginning of mankind and it’s very
powerful we don’t know what’s even
happening for example scientists have
found that just the thought of getting
money
well trigger the reward center in our
brains and dopamine levels go up so
you’ll have to get the money just
thinking about it makes you feel good
one study looked at the brain scans of
cocaine addicts and compared to those
expecting a financial gain
they were almost the same so in other
words our brain expecting money it looks
like a brain high on cocaine is that a
good way to make choices I think it
might explain why sometimes even I buy a
lottery ticket even though I know the
odds of winning or the same as being
struck by lightening hit by a meteorites
bitten by a shark and getting a hole on
one on the same day that ever happened
to you the first time I brought a ticket
home my wife and I stared at that and we
thought about what it would be like to
have all that money it feel good it
feels good now it’s been 25 years the
opposite of feeling good is fear and
fear might be the most dangerous emotion
when it comes to managing money because
it triggers the amygdala part of our
brain which bypasses rational thought
now that’s fine when you’re face to face
with a wild animal and you’ve got to
take action immediately but if that fear
is triggered by a drop in the stock
market rational thought is exactly what
we need to avoid what might be a costly
mistake this chart here shows us money
going into and out of mutual funds for
10 years you’ll see an O 3 and an O 9
there was more money coming out than
going in both those years were the
bottom of stock market downturns great
times to buy horrible times to sell many
people don’t exactly that there’s a good
chance you all know someone like my
client Dave not his real name he is
brilliant at what he does earns a high
income and has all the appearances of
success when we first met in 2017 he
revealed to me that in the summer of
2009 at the bottom of the market he
moved a half million dollars from mutual
funds to a bank account and it sat there
ever since a fear-based emotional
reaction cost us gentlemen
probably one and a half million dollars
of potential games that’s real stuff
increased dopamine levels in the brain
and fear are pretty strong emotions but
most of the mind tricks we play in
ourselves are far more subtle let me
give you two examples one is hindsight
bias that means when you get a positive
outcome we tend to view it as
confirmation of our skills and our
abilities and I’d like to think you have
something to do with it but we tend to
give ourselves too much credit if we get
a bad outcome what do we do we blame bad
luck or misfortune so this creates a
reality gap between what actually
happened and what we think happened
which in turn makes it harder for us to
learn from past successes and failures
and make better choices in the future
another mind trick is anchoring
anchoring is when we place too much
weights on one piece of information even
when it’s no longer relevant well
hindsight bias and anchoring cost Bob
$800,000 he was a successful businessman
who did quite well financially a friend
if he started a brand new company and he
decided to invest a hundred thousand
dollars in it at $1 per share turned out
to be a fantastic investment they went
public the share price rose to $10 can
you do the math his hundred thousand is
now worth 1 million dollars way to go
Bob that’s awesome we spoke and I said
maybe now you should consider selling
some of those shares
he replied Martin you don’t understand I
know the founder personally he says the
future looks bright and besides look how
was done so far I don’t think selling
makes any sense at all that’s an example
of hindsight bias Bob gave himself too
much credit for what turned out to be a
lucky investment can you guess what
happened next yeah price dropped to $7
Bob said I should have sold a 10 when it
gets back to ten I will that’s an
example of anchoring his brain was
anchored on the $10 share price even
the current and future price of any
stock has nothing to do with its past
value it dropped a $5 in eventually two
dollars his 1 million dollar account is
now worth $200,000 there are dozens of
mind tricks going on our heads all the
time I want to shift gears now a little
bit to some outside forces that can
multiply the impact of misbehavior and I
call them misbehavior multipliers first
one impacts all of us information
overload has your brain ever been tired
before I ran ok why we’re being asked to
make more choices than ever before in
the history of mankind and our brains
are not designed to handle it try buying
a cell phone or coffee at Starbucks or
Levi’s jeans you’ll be faced with dozens
and dozens of choices that did not exist
just a generation ago now what about
fish crackers that’s a pretty simple
purchase right what’s the purpose of
fish crackers is to get your kids or
grandkids to behave in public that’s
what we buy it right so picture this
you’re on your way to an important
wedding you stop by the store to buy
fish crackers and here’s what you find
there are now 36 varieties of fish
crackers all you want is your kids not
to embarrass you in public and your
brain has to analyze compare and
contrast 36 varieties to get the right
one I was teaching a class about a year
ago a lady yelled out vanilla cupcake
now I’m thinking is she calling me
vanilla cupcake
I mean I’m white but luckily she
clarified it that’s my kids favorite
variety of fish cracker I had no idea
existed but it’s right there on the top
row when my kids were growing up we had
one kind of fish cracker it worked just
fine cheddar cheese all these choices
come at a real cost they caused our
brain to get tired and they make it more
difficult to think logically in his book
the organized brain daniel levitin said
neurons are living cells that
require oxygen and glucose to survive
and when they’ve been overworked we
experience fatigue so there you have it
your brain actually gets tired let’s now
put this in the context of managing your
money it’s nine o’clock at night you’ve
made a thousand choices today your brain
is tired but before you go to sleep you
remember you want to learn how to roll
over the old 401k that’s been ignored
for too long so you go to the fountain
of all knowledge which is what Google
great audience here’s what you find 267
million websites and how to invest your
money you’re laughing right what good is
that they all conflict anyway on top of
the websites we’ve got hundreds of daily
newspapers dozens of financial magazines
and all these 24-hour news channels
screaming at just sensational headlines
to get your attention now it’s 10
o’clock at night you are really brain
tired you have this important choice
that could impact you for decades and
you get overwhelming conflicting
information you feel like her don’t you
Oh make it stop
that’s uncomfortable maybe even painful
so the emotional side kicks in to make a
decision and get rid of the pain that’s
a key point it’s not trying to make the
best decision but the fastest decision
six months go by you ask yourself what
was I thinking you were not thinking
you’re reacting emotionally another
misbehaviour multiplier is sudden wealth
syndrome this is what happens when
someone gets a whole bunch of money all
at once through an inheritance maybe a
legal settlement or selling their
business in the case of a legal
settlement or inheritance those nearly
always follow a tragedy or a loss of a
loved one if we associate that money
with the loss of a loved one our minds
may go to work to get rid of that money
to try and reduce the pain in the case
of selling your business you spent
decades building it and now you’re asked
to do something you’ve never done before
how to manage millions of dollars in
liquid cash and that can be emotionally
overwhelming
there is no cure for financial
misbehavior it’s part of the price of
being human but what we can do is reduce
its impact in our lives let me give you
some ideas number one you’ve already
accomplished congratulations is just be
aware that financial misbehavior exists
so thanks for listening number two ask
yourself am I making this choice because
it feels right or by taking the time to
truly evaluate my options number three
take the time to write a list of all the
reasons you can think of to not do it
and then compare and contrast number
four get an outside opinion talk to
someone you trust who has no emotional
attachment to your money there’s a very
good chance they’ll see things more
clearly than you do
number five decide in advance this is
very powerful especially for southern
wealth syndrome let’s have some fun
imagine you’re gonna get ten million
dollars next month that’d be great
right before you get the money decide
where it’s going you might put a half
million dollars into a fun account just
go ahead and blow it and that’s okay you
might put one and a half million dollars
in a harebrained business idea account
because I guarantee when you get ten
million dollars all kinds of friends of
family are gonna come to you with great
opportunities for your money when you’ve
reached one and a half million the next
person who asks you say I’m sorry but
according to my plan there’s no money
left for new opportunities let the plan
be the bad guy instead of you because it
feels good to say yes and bad to say no
did people you care about and that can
help you with that you might take 7
million dollars and invest the money I
think giving million dollars to charity
the actual ratio is change for everyone
it is my belief that if professional
athletes and lottery winners who are
notorious for losing all their money
would simply decide in advance words
going far fewer would declare bankruptcy
and you may never win the lottery but
deciding in events can help you with
your next tax refund or your next pay
raise Jennifer works in the software
industry in the late nineteen nine
her stock options were worth about a
million dollars many of her colleagues
went on wild spending sprees and were
enjoying life but Jennifer took emotions
out of the equation and she decided to
sell her stock options in order to pay
off her house and diversify her holdings
the tech bubble burst in 2000 the
options became worthless her co-workers
were stuck with debt while to this day
Jennifer still enjoys a marvelous
lifestyle and takes awesome vacations
creating memories for her and her family
I hope you agree now that emotions can
be hazardous to our wealth and you’ll
help me share this message by telling
others you care about it otherwise they
might end up like Jackie Mason who once
said I have enough money to last the
rest of my life unless I have to buy
something when you separate emotions
from money management you can lead a
happier more productive and less
stressful life on your path to financial
freedom [Applause]
how many of you came into this world
with nothing can I see your hands should
be most of them right good now keep your
hands up if you still have most of it 27
years ago I began my career as a
financial advisor and I want to figure
out why some people succeed financially
and others don’t and I think the most
important lesson I’ve learned from the
field of neuro economics is this
emotions can be hazardous to your wealth
seeing neuro economics tries to combine
neuroscience economics in psychology to
better understand how our minds work
when it comes to managing money and it’s
not that emotions are bad the problem is
when we don’t recognize the influence
emotions have on our decision-making
process especially when it comes to
money and this leads to what I call
financial misbehavior financial
misbehavior is when smart successful
people much like you use gut feelings
and emotions instead of logic to make
important financial choices and this in
turn leads to lower investment returns
unnecessary spending and a lower net
worth it can go beyond the money and
impact how we feel about ourselves
impact our relationships and our overall
well-being I think we all know that the
brain has basically two parts the
logical side and emotional side and that
is an oversimplification but for the
purpose of this talk it works
the emotional side wants two primary
things to get pleasure or void pain
right now right I’ve been there before
haven’t we okay Nobel Prize winner
Daniel Kahneman said that as much as
possible our brains will push choices
into the emotional side instead of
logical side it’s easier it’s faster and
uses less energy it’s also a built-in
defense mechanism developed since the
beginning of mankind and it’s very
powerful we don’t know what’s even
happening for example scientists have
found that just the thought of getting
money
well trigger the reward center in our
brains and dopamine levels go up so
you’ll have to get the money just
thinking about it makes you feel good
one study looked at the brain scans of
cocaine addicts and compared to those
expecting a financial gain
they were almost the same so in other
words our brain expecting money it looks
like a brain high on cocaine is that a
good way to make choices I think it
might explain why sometimes even I buy a
lottery ticket even though I know the
odds of winning or the same as being
struck by lightening hit by a meteorites
bitten by a shark and getting a hole on
one on the same day that ever happened
to you the first time I brought a ticket
home my wife and I stared at that and we
thought about what it would be like to
have all that money it feel good it
feels good now it’s been 25 years the
opposite of feeling good is fear and
fear might be the most dangerous emotion
when it comes to managing money because
it triggers the amygdala part of our
brain which bypasses rational thought
now that’s fine when you’re face to face
with a wild animal and you’ve got to
take action immediately but if that fear
is triggered by a drop in the stock
market rational thought is exactly what
we need to avoid what might be a costly
mistake this chart here shows us money
going into and out of mutual funds for
10 years you’ll see an O 3 and an O 9
there was more money coming out than
going in both those years were the
bottom of stock market downturns great
times to buy horrible times to sell many
people don’t exactly that there’s a good
chance you all know someone like my
client Dave not his real name he is
brilliant at what he does earns a high
income and has all the appearances of
success when we first met in 2017 he
revealed to me that in the summer of
2009 at the bottom of the market he
moved a half million dollars from mutual
funds to a bank account and it sat there
ever since a fear-based emotional
reaction cost us gentlemen
probably one and a half million dollars
of potential games that’s real stuff
increased dopamine levels in the brain
and fear are pretty strong emotions but
most of the mind tricks we play in
ourselves are far more subtle let me
give you two examples one is hindsight
bias that means when you get a positive
outcome we tend to view it as
confirmation of our skills and our
abilities and I’d like to think you have
something to do with it but we tend to
give ourselves too much credit if we get
a bad outcome what do we do we blame bad
luck or misfortune so this creates a
reality gap between what actually
happened and what we think happened
which in turn makes it harder for us to
learn from past successes and failures
and make better choices in the future
another mind trick is anchoring
anchoring is when we place too much
weights on one piece of information even
when it’s no longer relevant well
hindsight bias and anchoring cost Bob
$800,000 he was a successful businessman
who did quite well financially a friend
if he started a brand new company and he
decided to invest a hundred thousand
dollars in it at $1 per share turned out
to be a fantastic investment they went
public the share price rose to $10 can
you do the math his hundred thousand is
now worth 1 million dollars way to go
Bob that’s awesome we spoke and I said
maybe now you should consider selling
some of those shares
he replied Martin you don’t understand I
know the founder personally he says the
future looks bright and besides look how
was done so far I don’t think selling
makes any sense at all that’s an example
of hindsight bias Bob gave himself too
much credit for what turned out to be a
lucky investment can you guess what
happened next yeah price dropped to $7
Bob said I should have sold a 10 when it
gets back to ten I will that’s an
example of anchoring his brain was
anchored on the $10 share price even
the current and future price of any
stock has nothing to do with its past
value it dropped a $5 in eventually two
dollars his 1 million dollar account is
now worth $200,000 there are dozens of
mind tricks going on our heads all the
time I want to shift gears now a little
bit to some outside forces that can
multiply the impact of misbehavior and I
call them misbehavior multipliers first
one impacts all of us information
overload has your brain ever been tired
before I ran ok why we’re being asked to
make more choices than ever before in
the history of mankind and our brains
are not designed to handle it try buying
a cell phone or coffee at Starbucks or
Levi’s jeans you’ll be faced with dozens
and dozens of choices that did not exist
just a generation ago now what about
fish crackers that’s a pretty simple
purchase right what’s the purpose of
fish crackers is to get your kids or
grandkids to behave in public that’s
what we buy it right so picture this
you’re on your way to an important
wedding you stop by the store to buy
fish crackers and here’s what you find
there are now 36 varieties of fish
crackers all you want is your kids not
to embarrass you in public and your
brain has to analyze compare and
contrast 36 varieties to get the right
one I was teaching a class about a year
ago a lady yelled out vanilla cupcake
now I’m thinking is she calling me
vanilla cupcake
I mean I’m white but luckily she
clarified it that’s my kids favorite
variety of fish cracker I had no idea
existed but it’s right there on the top
row when my kids were growing up we had
one kind of fish cracker it worked just
fine cheddar cheese all these choices
come at a real cost they caused our
brain to get tired and they make it more
difficult to think logically in his book
the organized brain daniel levitin said
neurons are living cells that
require oxygen and glucose to survive
and when they’ve been overworked we
experience fatigue so there you have it
your brain actually gets tired let’s now
put this in the context of managing your
money it’s nine o’clock at night you’ve
made a thousand choices today your brain
is tired but before you go to sleep you
remember you want to learn how to roll
over the old 401k that’s been ignored
for too long so you go to the fountain
of all knowledge which is what Google
great audience here’s what you find 267
million websites and how to invest your
money you’re laughing right what good is
that they all conflict anyway on top of
the websites we’ve got hundreds of daily
newspapers dozens of financial magazines
and all these 24-hour news channels
screaming at just sensational headlines
to get your attention now it’s 10
o’clock at night you are really brain
tired you have this important choice
that could impact you for decades and
you get overwhelming conflicting
information you feel like her don’t you
Oh make it stop
that’s uncomfortable maybe even painful
so the emotional side kicks in to make a
decision and get rid of the pain that’s
a key point it’s not trying to make the
best decision but the fastest decision
six months go by you ask yourself what
was I thinking you were not thinking
you’re reacting emotionally another
misbehaviour multiplier is sudden wealth
syndrome this is what happens when
someone gets a whole bunch of money all
at once through an inheritance maybe a
legal settlement or selling their
business in the case of a legal
settlement or inheritance those nearly
always follow a tragedy or a loss of a
loved one if we associate that money
with the loss of a loved one our minds
may go to work to get rid of that money
to try and reduce the pain in the case
of selling your business you spent
decades building it and now you’re asked
to do something you’ve never done before
how to manage millions of dollars in
liquid cash and that can be emotionally
overwhelming
there is no cure for financial
misbehavior it’s part of the price of
being human but what we can do is reduce
its impact in our lives let me give you
some ideas number one you’ve already
accomplished congratulations is just be
aware that financial misbehavior exists
so thanks for listening number two ask
yourself am I making this choice because
it feels right or by taking the time to
truly evaluate my options number three
take the time to write a list of all the
reasons you can think of to not do it
and then compare and contrast number
four get an outside opinion talk to
someone you trust who has no emotional
attachment to your money there’s a very
good chance they’ll see things more
clearly than you do
number five decide in advance this is
very powerful especially for southern
wealth syndrome let’s have some fun
imagine you’re gonna get ten million
dollars next month that’d be great
right before you get the money decide
where it’s going you might put a half
million dollars into a fun account just
go ahead and blow it and that’s okay you
might put one and a half million dollars
in a harebrained business idea account
because I guarantee when you get ten
million dollars all kinds of friends of
family are gonna come to you with great
opportunities for your money when you’ve
reached one and a half million the next
person who asks you say I’m sorry but
according to my plan there’s no money
left for new opportunities let the plan
be the bad guy instead of you because it
feels good to say yes and bad to say no
did people you care about and that can
help you with that you might take 7
million dollars and invest the money I
think giving million dollars to charity
the actual ratio is change for everyone
it is my belief that if professional
athletes and lottery winners who are
notorious for losing all their money
would simply decide in advance words
going far fewer would declare bankruptcy
and you may never win the lottery but
deciding in events can help you with
your next tax refund or your next pay
raise Jennifer works in the software
industry in the late nineteen nine
her stock options were worth about a
million dollars many of her colleagues
went on wild spending sprees and were
enjoying life but Jennifer took emotions
out of the equation and she decided to
sell her stock options in order to pay
off her house and diversify her holdings
the tech bubble burst in 2000 the
options became worthless her co-workers
were stuck with debt while to this day
Jennifer still enjoys a marvelous
lifestyle and takes awesome vacations
creating memories for her and her family
I hope you agree now that emotions can
be hazardous to our wealth and you’ll
help me share this message by telling
others you care about it otherwise they
might end up like Jackie Mason who once
said I have enough money to last the
rest of my life unless I have to buy
something when you separate emotions
from money management you can lead a
happier more productive and less
stressful life on your path to financial
freedom [Applause]
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