What is Negativity Bias And How It Can Lose You Money!
How come when you receive some criticism or some bad news, you seem to remember it so vividly? Well, the truth is, our brains are wired to remember negativity much more than positivity. Negativity has a significant impact on our minds. Studies had shown that when people saw pictures of pleasant things (pizza, ice cream) vs. negative things (mutilated face or dead cat), the negative images produced much stronger activity in the brain. The reason for this? Well, it turns out our mind is trying to help us by making sure we remember all this negative stuff. It wants us to survive. It’s a survival technique.
When it comes to investing, understanding how our brains are wired is essential when the market starts to go sour. In the middle of market losses, our brains are wired to remember those negative experiences very clearly. Once those negative memories sink in, it may cause investors to act irrationally just based on fear alone. It’s important to realize that money can always be made in both bullish & bearish markets. The most famous investor of our time, Warren Buffet has a famous quote of saying “be greedy when others are fearful and fearful when others are greedy.” The good news is that the brain can override this natural tendency and make an intelligent decision and not one that is driven by fear.