#IIC15 – The Role of the Right Brain in Investing

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Speaker: Jason Voss, CFA, Content Director, CFA Institute

Moderated by: Ashwin Vibhakar, CFA, Senior Advisor & Executive Sponsor Future of Finance, CFA Institute

Written by: Chetan Shah, CFA, Senior Portfolio Manager, Religare Invesco and Director, IAIP

The behavioral aspects are getting increasing attention in the fields of finance, and particular in the field of investing. Biases like “confirmation”, “overconfidence”, “loss aversion”, “mental accounting”, and “anchoring” have been observed amongst analysts and professional investors. However, behavioral finance is silent on how to deal with it. It is a diagnosis without a prescription to put in Jason’s words.

So Jason came out with his model of mind with activities divided between the left and right lobe of the brain. The left brain is responsible for analytical, logical and analytical part of thinking based on facts and numbers. Whereas the right side is more about creativity and intuition. While we have been using the left brain in the field of investing, tapping the right brain can improve returns considerably. He mapped the investing skills to the mind by dividing it into four quadrant with top left having models like CAPM, APM; the bottom left resulting into paralysis with analysis; bottom right representing behavioral finance and finally top right having investment policy statement, intuitive investor etc. The goal is to migrate from bottom left to top right quadrant. The goal is to move from intelligence to wisdom. And the connecting link is intuition.

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Intuition is neither system 1 thinking nor system 2 nor should it be confused with instinct. According to modern philosophy it is an immediate apprehension of an object by the mind without the intervention of any reasoning process. From the investing angle it is like identifying relevant information or signal from the vast sea of information or noise.

An advocate of using the whole brain, Jason showed how simple techniques of meditation can help one tap the right brain. One could break out of the negative feedback loop by thinking about the most awesome event in one’s life.

– CGS

PS: 

For the complete coverage of #IIC15 (for India Investment Conference 2015) kindly click on the links to the posts on the WordPress or search under the tab “India Investment Conference”:

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About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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4 Responses to #IIC15 – The Role of the Right Brain in Investing

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