Don't let fear distort your thinking

The brain's 'X-system', or 'fight or flight' reflex, is good at getting us out of immediate physical danger. But it often gets in the way of making good investment decisions. Tim Bennett explains how to invest logically.

Imagine there's a cobra coiled inside a sealed glass box three feet away from you. As you approach, the snake rears up. What do you do? You leap back, of course. This is what psychologists call your brain's 'X-system', or 'fight or flight' reflex, kicking in. The argument is that when over the course of our evolution, this is what got us out of trouble. A rapid, reflex response to fear "carried a very low cost to a false positive", as James Montier at Socit Gnrale puts it at worst we wasted energy running away from danger. That's a price worth paying compared to "the potentially fatal cost of a false negative" being bitten or eaten. The trouble is, says Montier, sometimes it's better to think first and react later to use our more logical, rational and slower 'C-system'. And a bear market like the one we're in now is one of those times.

Emotional investors miss bargains

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.