Lessons in investing from one of our most respected financial journalists.
Most readers may not remember Jason Zweig's stint with Africa Report Magazine in the early 1980s, or his writings on sports and entertainment for Time-Life News Service in 1986, but they do know he's been one of our most prolific writers on investing since that time.
As well as his writings for Forbes, Time, and Money magazines, Zweig has authored two books--most recently YOUR MONEY AND YOUR BRAIN: How The New Science Of Neuroeconomics Can Help Make You Rich (Simon & Schuster, 2007). And--still unknown to many--beginning July 1 he will leave Money to fill a key personal-finance slot at The Wall Street Journal.
We talked to Zweig about his career and his latest thoughts on investing, the current stock market and his upcoming appearance at the Morningstar Investment Conference.
David Drucker: Jason, you've written a regular column for Money magazine since October 1995. How do you keep your material fresh?
Jason Zweig: The key is to try to find new ways to say the same old thing while sticking to what's right and true. A lot of content is repeated, but it must not be apparent to readers. That means constantly searching for new evidence to prove the same old thing, which is what initially led me to study behavioral finance and, eventually, neuroeconomics.
DD: How would you define neuroeconomics?
JZ: As you would guess from its name, neuroeconomics is a hybrid of neuroscience and economics with a lot of psychology thrown in. Neuroeconomics asks the question: "What is happening to the brain's wiring that generates the financial behavior people exhibit when they invest or make other decisions about their money?" By analyzing what goes on in the brain, the most important thing we learn is that investing is a profoundly emotional experience. Most financial advisors like to believe the process is rational, objective, and that there are right and wrong answers... in other words, with enough understanding, you should always get the result you want and expect. Neuroeconomics shows it's almost impossible to take emotion out of the financial decision-making process and that's not always a bad thing; it's just very important to recognize how important emotion is to personal finance. Fear, greed, hope, regret, surprise and disappointment all must be acknowledged. Advisors need to let clients know it's OK to feel pain when the market crashes. We'd like them to be like Warren Buffett and just shrug it off, but few people can do that. The way to manage that is not by pretending the emotion doesn't exist, but by helping people recognize that intense emotion, and the fact that they must not act upon it. In other words, it's OK to be afraid, but it's not OK to make financial decisions in a way that's fearful.
DD: This sounds a bit like the field of genoeconomics.