Benefits of Mindful Investing
I recently had the privilege of attending a mindfulness workshop hosted at Deutsche Bank for the Junior Women in Markets Committee (this is a fantastic network for women working in Australian equity markets). I wanted to share the exercises we learnt, but also explain the value of practicing mindfulness in investing.
We’ve written on many occasions about cognitive biases. In particular, we’ve identified that some of these biases arise from having too much information and needing to act fast. Mindfulness is particularly good at helping fight back from these cognitive blind spots.
Equity markets are full of noise – there is constant new information. Successful investing relies on you being able to separate the “noise” from the “true value drivers”. Furthermore, markets can react quickly to new information which can create a sense of time pressure. This can make your mind susceptible to biases such as the disposition effect. Learning to slow down, be mindful, and think clearly can reduce your chances of succumbing to these biases and help you make better investment decisions.
Here are three mindful exercises I learnt that you can practice to reduce your own biases, feel more present and increase your focus:
- The 2 minute journal
What? Set a timer for 2 minutes. Grab a pen and paper and write down everything that comes into your head. It can be a memory, words/ concepts, it can even be “I have nothing on my mind”.
Why? This exercise can make your mind feel less cluttered. Writing about a particularly sensory memory can also be relaxing and help you focus more on your body and self-awareness.
- Active listening
What? Listen to a friend or colleague. Do not check your phone, or plan questions, or look out the window. Focus 100% of your attention on what the person is saying (not your own reactions/ ideas) and what their body language is doing. If you have a thought or a distraction, observe it, acknowledge it, then bring your attention back to what the person is saying.
Why? This helps you be present, it’s also done incredibly rarely and is a very useful soft-skill.
- The mindful drink
What? Take a beverage of your choice (water, tea, koombacha, champagne), and consider it. Feel its weight, smell it, take a very small sip and observe yourself drinking it – not only the taste, but also the temperature, the texture, the smell.
Why? Focusing on senses is a great way of getting in tune with your body and helps clear your thoughts. It’s also quite nice to fully appreciate and savour what you’re eating/ drinking.
You can read my other articles about cognitive biases here:
https://rogermontgomery.com/a-biased-map/
https://rogermontgomery.com/how-to-develop-the-right-temperament-for-investing/
https://rogermontgomery.com/3-more-cognitive-biases-you-need-to-know/
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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John
:
Good points here Lisa
Nikolas Rose writes about our modern obsession to see everything through brain science. See NEUROCHEMICAL SELVES.
Neuro: The New Brain Sciences and the Management of the Mind (2013)
All I am saying is that we need to be careful if it is us doing the thinking or if the mind gurus who are telling us how to think. I look at some of these gurus and I must say I would rather trust my own mind and experience than rely on their teachings and science.
As for Buffet and Burgers :) and his discipline in not paying out to his children – I get the feeling that he is using the good old fashioned Puritanism and a faith in numbers rather than mindfulness. :)
Best John
Lisa Fedorenko
:
An interesting viewpoint – we may just have to agree to disagree on this one :)
John
:
Yep,
and a final thought that I had – I have some experience with the use of mindfulness, positive psychology and so on in workplaces and I have to say that it is mostly a way of management enforcing discipline on workers – and not in a positive way.
Even if in its pure form it does something positive – if I discovered a business was promoting this type of activity with it workers I would question its management, direction and leadership in the same way if it was having prayer sessions or getting workers to dance the Nutbush City Limits.
John
John
:
Lisa
The presence of ‘mindfulness’ currently is equal to what prayer was 300 years ago.
The main differences is that prayer comes more from an Abrahamic tradition while mindfulness comes from more of a Buddhist meditation tradition. Arguably it Western iteration is much more Western than it is Eastern and reflects the modern condition.
Here we come to the difference between prayer and mindfulness. Prayer is more social while mindfulness is more based on a highly individualised society – Christopher Lasch’s Culture of Narcissism comes to mind.
Here we come to ‘investing’. The Protestant Work Ethic – and its practices -was a key to the development of capitalism and entrepreneurial culture. The jury is out on mindfulness but I would guess that, it and Positive Psychology, are manifest forms, of neoliberalism. I doubt that neoliberals are the smartest people in the room when it comes to investing – my guess is that mindfulness is about as useful as prayer. Like prayer , it makes some people feel better and it provides some faith, but the idea that it contributes to real insights into markets or helps people to focus on what is important is doubtful. I am quiet sure the best investors are not users of mindfulness.
John
Lisa Fedorenko
:
Hi John,
Some very interesting philosophical points there.
Whilst I haven’t seen studies on prayer, and there could well be measurable benefits, I have read significant research on the effects of mindfulness from both a psychological and neurological framework. What makes mindfulness particularly interesting to me, is that it has been shown to create physical, measurable changes in the brain. Yes – mindfulness actually changes your brain (it’s related to a property of the brain called neuroplasticity). Specifically, it increases activity in your prefrontal cortex (this is the self-aware part of your brain) and reduces activity in your amygdala (this is the oldest most primitive component of the brain, it is highly emotional and responsible for your fight or flight reaction). Certainly such brain activities help you make more rational, less emotive, investment decisions.
Whilst I cannot speak to the practices of all investors. One strong proponent for meditation is Ray Dalio (founder of Bridgwater, and with a net worth of $17.4bn, it would be hard to argue that he is not one of the best investors). Here’s an article on his views, but you may also find his book, Principles, worth a read: https://www.businessinsider.com.au/wall-street-trend-transcendental-meditation-2016-10?r=US&IR=T
Cheers,
Lisa
John
:
ok, Lisa but I am guessing that watching Tv, playing computer games and drinking coffee changes the brain in some way.
Also, the Dalio example is interesting but I just think there are so many counter examples. Buffet likes McDonalds.
Not an investor but I am guessing that being a sceptic is also important attribute.
john
Lisa Fedorenko
:
Actually – the mindfulness impact is particularly interesting as it can create physical long-term positive changes. Coffee (or more specifically caffeine) works by suppressing a neurotransmitter called adenosine. Lower adenosine increases attention, alertness and sleep. This is a very temporary effect rather than a physical transformation. Similarly, watching TV has been shown to increase brain activity in the amygdala (that emotive primitive part of your brain), during watching.
I’m not sure I understand how Warren Buffett’s food preferences relate to mindfulness – however I’m sure we can both agree that “Buffett’s success as an investor required not only deep analysis of financial documents but also a large measure of self-control to avoid getting caught in market bubbles and panics”*. This type of behaviour and thinking is made by a strong prefrontal cortex and a less influential amygdala. Mindfulness helps change your brain to exhibit that characteristic.
Source: https://www.psychologytoday.com/us/blog/predictably-irrational/200903/warren-buffett-and-his-attempts-self-control