Train your brain – Monterey Herald

The human brain is amazing. Although the average human brain weighs only about 3 pounds and is just under 6 inches long, it can do things that no supercomputer can match. He can reason, create and show empathy. It can remember the past, plan the future, and live the present in a way that brings joy and meaning to our lives. But the human brain also has its limits. Sometimes we just don’t think very well.

Brain scientists tell us that stress can either help us or hurt us, depending on the amount of stress we face and how we choose to respond to it. Under certain conditions, moderate stress can actually improve brain function by strengthening the connections between neurons in the brain. These stronger connections can help us process ideas faster and remember better. However, our brain health suffers if we are constantly stressed. Not only does overwhelming stress cause negative emotional reactions, but it can actually destroy brain cells, impair memory, and alter the physical structure of the brain.

You might be wondering now why a financial planner writes about the human brain. It is simply this: the quality of your thinking determines the level of success you achieve in life. Unless you train your brain, all the other planning you do will never be enough to give you the satisfaction and peace that are hallmarks of true success.

When I say training your brain, I mean learning to overcome what psychologists call “cognitive distortions.” If you’ve ever tried to look through thick, wavy glass, you know how much glass distorts your vision. In the same way, cognitive distortions distort our perception of the world. When we act on these distorted perceptions, we make bad decisions and undermine our happiness. Fortunately, cognitive distortions can be corrected.

A common cognitive distortion is known as “catastrophizing.” We all have famous people who see disaster looming around every corner. They exaggerate bad news and take it to its logical, often catastrophic extreme. Bear markets, like the one we are currently entering, often lead to doomsday thinking. If you find yourself catastrophizing your investments, try to remember that there have been many bear markets in the past and the market always recovers. If your portfolio is well designed, it will resist the bear market and come back with a vengeance once the inevitable bull market returns.

Another common cognitive distortion is called “filtering.” When we filter, we amplify the importance of negative information while ignoring or minimizing the positive information available. Financial experts are world champions in filtering. For example, when the COVID lockdowns hit in 2020, the US stock market fell over 30% within weeks. Many financial pundits were so convinced the world was coming to an end that they failed to see the impact of the massive stimulus from the Fed and Congress. Pundits missed a massive rally that more than made up for the losses they suffered during the COVID meltdown.

As the bear market progresses, we should expect to hear more pessimism from the media. Market experts make a lot of money by exaggerating the negative, so you can’t expect them to be a balanced source of market information. If we want to avoid being infected by their evil thinking, our best bet is to just ignore them. In any case, when considering the markets, remember that there is always more than one side to every story. If you don’t see the positive, acknowledge the possibility that you may not have looked hard enough.

Cognitive distortions are like weeds in our way of thinking – they just seem to grow on their own. Unless we actively work on it, these weeds can overcome our mental gardens. A good way to discourage weeds is to intentionally cultivate our mental gardens with healthy habits and correct principles. Instead of stewing in the bear market, take the time to ensure your portfolios are invested in a well-diversified portfolio of high-quality stocks and bonds. Review your portfolio structure to make sure it matches your financial plan. Develop your investment policy. These constructive actions will help you stay focused on the things you can control and help distract you from the things you can’t control.

Steven C. Merrell is a partner at Monterey Private Wealth Inc., an independent wealth management firm in Monterey. He welcomes your questions regarding investments, taxes, retirement or estate planning. Send questions to Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to [email protected]