Understanding investments: the influence of the conscious and unconscious mind on our financial decisions

I recently finished a (popularized) book on neuroscience and the subliminal activity of the brain. In a nutshell, most of the decisions we make, and believe we make deliberately, are actually pre-programmed and predictable (today we are able to detect with a scanner the moment a decision is made and it is always before we are aware of it). What a lesson in modesty and humility! Philosophers are now joining the discussion to determine what represents the real free will of the human being, but that is not the point of this intervention. What seems interesting to me is to have here a confirmation of what behavioral finance has taught us in the last 10 years: we make irrational, illogical, contradictory decisions, are more sensitive to losses than to gains, are influenced by many factors that have nothing to do with an economic approach, In short, we are animals who are anything but well equipped to make financial investments!

For us private investors, this is very discouraging. Especially as we also know that a group decision is always more 'right' (in the sense of rational and consistent) than an individual decision (where the subjective has too much weight because it's not subject to critical scrutiny). Decidedly, I'm not cheering you up....but read on: In fact, what behavioral finance teaches us is that our brain (read: our history, our emotions, our past,...) disturbs thinking that should be rational. We've chosen an investment policy, but it's subject to the vagaries of our 'moods'. In other words, it's not so much the investment policy that counts as following it in a disciplined, systematic, obsessive way. If you think high-frequency trading is the best way to make money, then do it and stick to it. Not only will this avoid the subjectivity of decisions (in part) but, more importantly, you'll also gain experience.

It is for all these reasons that the pursuit of high dividends is probably an excellent policy for the individual and private investor: the framework is clear (no stocks with less than x% dividends), easy to implement, easy to stick to (there is still a relatively large choice of stocks with high dividends and whose track record is good). We can of course lie to ourselves but deviation is difficult when faced with such clear and transparent criteria.

There are certainly investment professionals (or not) who do better than chasing dividends in terms of long-term returns. But the trade-off in the equation time invested + security + ease of investment policy + elimination of subjectivity = returns the high dividend policy is certainly the best one can follow.