Saturday, March 12, 2005

Birdbrained ?

I just finished reading yet another interesting book titled Mean Markets and Lizard Brains by Terry Burnham. While repetitive at times, the book still does a wonderful job of running over your investing ego with a 16-wheeler equivalent. Lizard Brain is the author's term for that part of our thinking organ that repeatedly tricks us into taking irrational/emotional decisions, and the evidence cited is compelling.

The main point made by the book is that the human brain is still oriented towards solving problems that our hunter/gatherer ancestors faced and that it is just not equipped to deal with the complexity of the modern world, especially artifical settings like the financial markets. As someone who has always believed (yes, that is the cynic in me talking) that it will be a few million years before we can call the human race as highly evolved, I found this book easy to digest.

Please read this book, if only because it is guaranteed to kill your over-confidence, and that is good for your investing health.

The book argues against dollar-cost averaging and averaging losers, but those 2 methods when used extremely carefully, can be very beneficial. I have done both with respect to takeover targets that are trading at low multiples of book value, and that has helped me amplify my gains. The techniques work in this case because some of these obvious takeover targets get taken down with the rest of the market to prices that can only be termed mouth-watering.

I have also added an earlier book by the author, called Mean Genes, to my reading list.


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