Chapter 6The Power of Fear and Decision Fatigue

Jacobian Inverse: So that I don’t suffer any anxiety, fear, or uncertainty, I will invest only in investments that I am excited about and where there is an abundance of capital. It feels a lot better investing in companies that everyone likes and that have done well rather than buying businesses that no one likes and are doing poorly. I don’t want to feel uncomfortable in the investment process at all.

This inversion should help you realize that if you are feeling concerned or uncomfortable and you’re in a cognitive battle, you may be buying a business at the right price. Remember, when you buy low, the news, the enthusiasm and your emotions surrounding the business are not good.

Let’s play a little game. Let’s say I gave you $25 to bid on an item at an auction. It’s a small item, but I told you that if you won the auction, you could keep whatever was left over from the original $25. How aggressively would you bid? Probably not that hard. It’s not your money after all. But what if I gave you $25 and told you the only way to keep it was to win the auction? Would that change your perspective? Would you bid harder because not winning would cost you $25? Well, science tells us that the answer to this last question is a resounding yes.

Scientists at New York University conducted a very similar study in 2008, using imaging technology to study brain activity among people given a lottery ticket and those given money to bid at an auction. ...

Get The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.