Chapter 5Self‐Appointed Gurus and Neanderthal Brains

Thousands of years ago, a couple of your ancestors pushed their way through jungle foliage looking for their next meal. A tiger attacked from behind and ate one for lunch. The survivor told other villagers. One woman shared a similar story. So the villagers realized a pattern. Giant cats eat people. Better avoid them.

Another time, your ancestors discovered which berries were poisonous, which caused diarrhea, and which they could safely eat and enjoy. To survive and propagate, they learned patterns: which berries would kill, which would woo, and which could ruin a perfect picnic.

Humans are hardwired to seek such patterns. But while good for survival, these same pattern‐seeking tendencies make us lousy investors. We figure if something is rising in price, it will keep rising. And if something drops in price, it will keep falling. But the stock market isn't a tiger or a jungle berry.

The best times to have invested in stocks would have been 1931, after the 1929–1930 stock market crash; 1973–1974, after the markets plunged more than 40 percent; October 1987, when a single‐day market drop exceeded 20 percent; 2000–2002, when markets fell 40 percent; and 2008–2009, when global stocks were sliced in half. Instead of celebrating these discounts, however, many investors soiled their pants.

When stocks fall, many fear the market will never recover. So they don't invest. Others try guessing where the market will bottom out before ...

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