{"id":153,"date":"2021-12-11T20:27:00","date_gmt":"2021-12-11T20:27:00","guid":{"rendered":"http:\/\/thecuriouspractitioner.org\/?p=153"},"modified":"2022-12-11T20:35:14","modified_gmt":"2022-12-11T20:35:14","slug":"we-are-not-hard-wired-to-invest","status":"publish","type":"post","link":"https:\/\/thecuriouspractitioner.org\/?p=153","title":{"rendered":"We are not hard-wired to invest"},"content":{"rendered":"\n<p>Working in the financial industry, I have had the privilege of discussing wealth-related topics with people from diverse walks of life. Billionaires, entrepreneurs, celebrities, family members, friends, or even\u00a0at cocktail parties. All with very different situations, aspirations and perspectives on money. Regardless of their wealth, one thing always stood out.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">We humans are not programmed to invest\u2026<\/h2>\n\n\n\n<p>We\u00a0are good at saving and spending, formulating plans with\u00a0our\u00a0money, but not at investing. There are exceptions, of course. We all know a few born investors around us, but for most of us, not investing is the default behaviour. And we have long wondered why. Here\u2019s one potential reason.<\/p>\n\n\n\n<p>By definition,\u00a0<strong>investing means accepting to give away something, our money, in exchange for the\u00a0promise\u00a0to get it back later, with a little bit more<\/strong>. I urge you to read that once more. Unless you are an incurable optimist, you might be experiencing a strange feeling of suspicion. And why wouldn\u2019t you? Giving away your money and all the potential benefits that come with it, just for a hypothetical gain?\u00a0Some questions might already be popping into your head:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>\u201cHow big is the gain?\u201d<\/em><\/li>\n\n\n\n<li><em>\u201cWhen will I&nbsp;get&nbsp;my money back?\u201d<\/em><\/li>\n\n\n\n<li><em>\u201cWhat will you do with it?\u201d<\/em><\/li>\n\n\n\n<li><em>\u201cWhat are the risks?&nbsp;Can I lose my money?\u201d<\/em><\/li>\n<\/ul>\n\n\n\n<p>There are too many unknowns\u00a0in this proposition, too many factors that are out of reach.\u00a0After all, financial markets offer everyday evidence that investments entail risks.\u00a0What seems like a hypothetical gain on the paper could turn out to be a loss for the investor in reality!\u00a0Hence the doubt.\u00a0In technical terms, investing involves delayed gratification and risk, two notions we always struggle with.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">\u2026but we are programmed to listen to stories!<\/h2>\n\n\n\n<p>Now let\u2019s say you got an answer for each question asked:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>\u201cThe potential gain is 20%\u201d,<\/em><\/li>\n\n\n\n<li><em>\u201cYou will get your money back plus interest in 2 years\u201d,<\/em><\/li>\n\n\n\n<li><em>\u201cYour money will help finance a company about to launch a new vaccine\u201d.<\/em><\/li>\n\n\n\n<li><em>\u201cThe risks are the following:\u2026.\u201d<\/em><\/li>\n<\/ul>\n\n\n\n<p>Interested? You might even start crunching numbers in your head:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>\u201cThis gain for this period means a 10% annualized return\u201d.<\/em><\/li>\n\n\n\n<li><em>\u201cThe chances of not getting my money back are only 5%\u201d.<\/em><\/li>\n\n\n\n<li><em>\u201cWith the return earned, we could buy the car we need\u201d.<\/em><\/li>\n<\/ul>\n\n\n\n<p>If the numbers are good and the explanations credible, something magical happens: a story emerges. Suspicion becomes excitement. A long shot seems within reach. And when the \u201cpotential\u201d benefits of the proposition seem to outweigh the inconvenience and risk of investing, a door unlocks in our brain, and we begin to imagine new possibilities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why are&nbsp;investment&nbsp;stories so powerful?<\/h2>\n\n\n\n<p>According to Nobel prize-winning economist, Robert Shiller,\u00a0stories\u00a0play an important role at an individual level, and at the scale of economies. As he puts it: <em>\u201cEconomic narratives are contagious, they suggest scripts for people to follow, they repeat their messages, and they\u00a0thrive on human interest\u201d<\/em>. Every day, new stories emerge and spread, drawing you to invest. Stories around innovation stocks, cryptocurrencies, clean energy etc. act as\u00a0a\u00a0powerful catalyst: they mix facts, emotions and interests,\u00a0and form an impression on your mind. The more stories you hear the more you expand your set of possible actions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why should you deconstruct stories?<\/h2>\n\n\n\n<p>It is important to understand how stories resonate with us, and the kind of actions they prompt. The role of stories is vital in keeping us motivated and inspired. <strong>No stories, no investment.<\/strong><\/p>\n\n\n\n<p> Examining and dissecting them gives us another powerful tool \u2013\u00a0the ability to remain objective and build\u00a0a real investment thesis\u00a0to\u00a0make an informed decision.\u00a0If you apply these principles to the investment stories you hear, what do you find?<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Working in the financial industry, I have had the privilege of discussing wealth-related topics with people from diverse walks of life. Billionaires, entrepreneurs, celebrities, family members, friends, or even\u00a0at cocktail parties. All with very different situations, aspirations and perspectives on money. Regardless of their wealth, one thing always stood out. We humans are not programmed&#8230;<\/p>\n","protected":false},"author":1,"featured_media":154,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12,2],"tags":[],"class_list":["post-153","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-finance"],"_links":{"self":[{"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/posts\/153","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=153"}],"version-history":[{"count":1,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/posts\/153\/revisions"}],"predecessor-version":[{"id":155,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/posts\/153\/revisions\/155"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=\/wp\/v2\/media\/154"}],"wp:attachment":[{"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=153"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=153"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thecuriouspractitioner.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=153"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}