The Prefrontal Cortex, part I

by | Sep 7, 2018 | Investor Behavior

According to the definition found at, the prefrontal cortex “…region of the brain has been implicated in planning complex cognitive behavior, personality expression, decision making… ”

Maybe  a part of our brain stops us from becoming better investors?   So, help me reconcile this quote from Warren Buffett:

“There seems to be some perverse human characteristic that likes to make easy things difficult.”

This week, FOTF (friend of the firm) Lawrence Hamtil reminded us of this wonderful quote from Warren Buffett, which he uttered in 1985 – now over thirty years ago. And I’ll confess I swiped that line early (and often) in my career and repeated it in hundreds and hundreds of client meetings since.

“There seems to be some perverse human characteristic…”

A quick reminder, we’re ALL human and all susceptible to weaknesses, faults and failings. One of the best traits of successful investors is to realize they could be their very own worst enemy. It’s one of the reasons we suggest writing down the reason behind an investment, on the day it is made. And when in doubt or worry, an investor can quickly remind themselves why the decision was made in the first place.

Back in my days as a student at Chaminade, my English teacher (Brother Robert Lahey) would remind us not to second-guess answers on the test. But if you have to guess, go with your first decision, he would say, it’s often right. The other option was to just choose answer “B” on the multiple choice. 🙂

…”that likes to make easy things difficult.”

Why do we (as humans) do this? Maybe it’s the business, the industry of “selling money” (that is, Wall Street), that prefers to make things complicated. Maybe it’s simply human nature – where people think, “it just can’t be THAT simple.” And possibly it’s a combination of folks just losing their common sense for a moment.

The bank down the street has a “special” on their CD rates. Have they lost their minds? How can they give away such a juicy interest rate when everyone else in the community has lower yields? Have we forgotten the business a bank is actually in?

Warren BuffettWe remind folks that insurance companies can offer better rates than others because they know they are taking calculated risks with the capital you are lending them. The insurance company will invest that capital as they see fit to pay customers the stated return, plus make a profit for their business. That is their business.

Why are home buyers urged to “lock in that mortgage rate” today? Because rates may be higher before the loan is closed? Will 1/8th of a point higher interest rate completely stop someone from buying that dream home (or first home)? For that matter, how many folks hem and haw over the mortgage rate once they found the home they always wanted? Probably not many.

Satisfying the “puzzle-addicted”/”I-gotta-fix-that-problem” part of our brain (the prefontal cortex) can feel extremely rewarding.  But for some unknown reason, many folks tend to make easy things complicated, and (in the process) screw up investments.  Simple wins.

Just ask Warren.


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