We all are different but we make decisions, including financial decisions, in roughly the same way. Our life experiences, successes and failures are wrapped up in the decision making process. I recently came across some interesting research, as well as a short TED video by Professor Peter Doolittle, on “Working Memory” – that part of the brain that helps us make sense of what is happening right now.
To a large extent, how well you succeed as an investor is based on how you process and eliminate “garbage” from your working memory. I know some clients tire of us harping on the value of reducing the noise and clamor of the day-to-day “news”, but this is why it is important.
One of the interesting pieces of the research Professor Doolittle speaks about is the MRI studies that demonstrate our limited ability to hold multiple thoughts in our head simultaneously. Some older research settled on about 10 items at one time. Actual brain scans, however, scaled this number back to 4 things at a time. The 5 word test that he does during the TED video demonstrates this conclusion.
Adjusting to Change
The TED video and some of Professor Doolittle’s research mention “approximation” and how we should understand that “things change”. This is critical to the mindset needed for a successful investing experience. Financial planning is dynamic, not static and should adjust to changing circumstances. Search for exactitude and precision are often detrimental to achieving long-term financial objectives. We simply do not live in a linear world.
One of the ways to improve working memory is to have a system of organization and support. That is where we come in. We help clients establish a framework for decision-making based on actual goals filtered through our 3 decades of experience. Ready for a real conversation?