Dopamine – “So you’re telling me there’s a chance” Loyd Christmas, Dumber and Dumber 1994

Dear Clients and Friends,


If neurotransmitters were characters in a movie, Dopamine would be the free-wheeling, careless optimist, who has the potential to unknowingly ruin the heroic plotline with egregious advice and poor judgment.  Don’t think Forest Gump, think Loyd and Harry from Dumb and Dumber.  Dopamine would give the hero tons of encouragement and often would be seen as the voice of unrelenting Mr. Brightside; but Dopamine’s ability to rationally survey the known variables in decision making is flawed and habitually underestimates danger and overestimates reward.  As investors, we all have Dopamine coursing through our neuronal mid-brain tissue, and our decision making can often be led astray by the Dopanergic effects on our judgment.  The point is not to paint Dopamine as the Villian of our discussion, but to say that humans must be aware that the reward-seeking desires of the brain (largely influenced by Dopamine) should be checked by a prudent sense of reality.


At the beginning of every year a number of market pundits produce market forecasts, and even the savviest investors fall prey to perusing a couple of these market prediction pieces. This is where Dopamine comes in – when we see these forecasts and they reinforce our existing beliefs about the future, we are more likely to believe them.  And we can blame Dopamine for that.  The converse is also true, if the prediction is contrary to our existing beliefs about the future, we will likely dismiss the forecast as bunk.  The truth remains that market forecasts are highly varied (which means most are wrong), and do not aid investors in making long-term decisions that affect their wealth.


I have often argued that investing is not trading. Trading is full of action, gains and losses, higher highs and lower lows, and is essentially gambling. Investing is almost the opposite – sitting around, waiting for opportunities, and once the investment is made, you have years and years to wait for the payoff. Dopamine plays almost no part in the investor’s decision – to wait and invest and then wait again. However, Dopamine plays a huge role in the trader’s brain, whereby the trader is being driven by the reward centers of the brain to act on hunches and feelings. While we may want to blame Dopamine for all bad behavior in our markets, this would do our loveable optimist a disservice. As the Dopamine is reinforced by experience, which then helps create conviction, which in turn can create wonderful outcomes for the rational investor. Dopamine is a necessary ingredient to any well-functioning brain; as investors we have to understand the advice it gives and the limitations of that advice.


What lies ahead for investors is a year full of predictions – the federal reserve and interest rates, inflation and recession, and yes, the Presidential election, will all be prime motivators for the pundits to forecast and expound upon.  This will lead many of us, myself included, to desire answers to future problems and seek out predictions.  We will have to collectively keep our Dopamine in check during these periods of uncertainty, taking note of the facts and data that surround our current debate. The economy has not fallen off a cliff. Inflation is easing as the Fed expected. Elections happen and we tend to move forward. The market has largely defied the odds and marched higher in spite of considerable headwinds. It is during periods of change and disruption that the investor needs to keep their cool (keeping their Dopamine in check), and stay the course. I stand ready and willing to answer all questions this year.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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