By Dr. Rikki Racela, WCI Columnist
As budding doctors in the throes of medical school studying, there is a famous book that most, if not all, medical students purchase to learn about microbiology called, Clinical Microbiology Made Ridiculously Simple. You know the one I’m talking about: the book with absolutely hilarious pictures that are memorable depictions of microbiology-related facts. From the picture of people wearing gold medals to memorize Staph Aureus to a sick rhino with a runny nose who's holding a bottle of Nyquil and a Corona beer to reinforce rhinovirus and coronavirus as the sources of the common cold, this book was highly effective in learning very dry, factual information in a fun and visually engaging manner.
How does this relate to the world of personal finance?
We can use the same method of using visuals to help us attain in-depth financial knowledge and also achieve our financial goals. In my financial literacy journey, I have recognized that, when it comes to investing, I am my own worst enemy. Economist Benjamin Graham said so himself: “The investor's chief problem—and even his worst enemy—is likely to be himself.” I have also recognized as a neurologist that visualization has helped me tremendously in fighting my innate and detrimental human heuristics when it comes to investing and attaining my financial goals.
Visualization Is Not a Novel Concept
Now I cannot say that I have come up with this concept all by myself. In Stephen Covey’s The 7 Habits of Highly Effective People, habit #2 is “Begin with the end in mind.” He emphasizes visualizing a goal and what it will look like in the future to help attain it. This has always been sage advice. We are always told to have goals, and when we speak about it, we are actually visualizing what we are trying to attain. Taking this one step further, putting those goals on paper, where we physically create and write down a goal we can see right in front of us, makes them easier to attain.
Mark Murphy wrote a pertinent article regarding written goals for Forbes. He wrote:
“Vividly describing your goals in written form is strongly associated with goal success, and people who very vividly describe or picture their goals are anywhere from 1.2 to 1.4 times more likely to successfully accomplish their goals than people who don’t.”
Murphy goes on to describe two reasons for this. The first reason is just seeing something written over and over again can help remind you of a goal. The second reason has a deeper reason called “encoding.”
The Neural Basis of Encoding
I’m sorry to get so nerdy here, but I am a neurologist and I am fascinated with the cross between finance and neurology. The concept of encoding is one of those crossroads. Murphy explains,
“Encoding is the biological process by which the things we perceive travel to our brain’s hippocampus where they’re analyzed. From there, decisions are made about what gets stored in our long-term memory and, in turn, what gets discarded. Writing improves that encoding process. In other words, when you write it down, it has a much greater chance of being remembered.
Neuropsychologists have identified the ‘generation effect' which basically says individuals demonstrate better memory for material they’ve generated themselves than for material they’ve merely read . . . You get to access the “generation effect” twice: first, when you generate the goal (create a picture in your mind), and second, when you write it down because you’re essentially reprocessing or regenerating that image. You have to rethink your mental picture, put it on the paper, place objects, scale them, think about their spatial relations, draw facial expressions, etc. There’s a lot of cognitive processing taking place right there. In essence, you get a double whammy that really sears the goal into your brain. Study after study shows you will remember things better when you write them down.”
That is the reason the owner of this blog harps on having a written financial plan. Once written, you have used your visual system to reinforce other areas of your brain to be financially savvy, avoid mistakes, and carry out financial success.
The Power of Vision Through an Anatomical Lens
The structural anatomy of the brain reinforces how important our visual system is in interpreting and responding to our world. The optic nerves, which process information from our eyeballs and transfer that info to our brains, are one of the densest and largest nerves in our body. In fact, it is predisposed to many autoimmune neurologic diseases, such as optic neuritis, because the nerves are so densely packed with myelin, the coating that resides on the nerves.
This information is received by a part of the brain called the thalamus. It then travels all the way to the back of your brain, where an entire lobe of the brain called the occipital lobe is dedicated to visual processing. Yes, one entire lobe of the brain is solely dedicated to visual information. There are only four lobes in the brain, so one may estimate that around 1/4 of your brain power is used to process visual information.
Some may wonder why the heck the occipital lobes would be in the back of the brain, where it resides on the opposite side of the skull from the eyes. It is thought that the occipital lobe is so important in its role of visual processing that we evolved to where it is now located safely in the back of our heads. As most predators would attack mainly in front of us, having the occipital lobes located in the back provided a survival advantage. There is arguably an evolutionary advantage to having the most important brain functions tucked in the back of our skulls, protected from day-to-day assaults that mainly occur in front of us.
The Link Between Visual Anatomy and System 1
So, how can you harness the power of visualization to become a better investor?
There are two main pathways where visual information gets processed: 1) up the top, or dorsal, side of the brain called the dorsal stream, or 2) it travels ventrally, or on the lower part of the brain called the ventral stream. The dorsal stream is mainly used to process visual information and how it relates to spatial relations. The much more interesting and relevant part of the brain, though, involves the ventral stream when it comes to vision and finance. This leads visual information to parts of the brain that involve emotions within the temporal lobe and includes structures like the nucleus accumbens, amygdala, and hippocampus. In his book, Your Money and Your Brain, Jason Zweig has this to say about the visual system:
“Visual information—especially imagery that conveys change—fires up your reflexive system and crowds out reflective thought.”
That’s why in every casino you walk into, there are bright, flashing lights everywhere! Your reflexive System 1 starts going nuts, activating the nucleus accumbens and making you want to gamble for potential reward. But just like casinos are using the power of visualization against us so we lose money, we can harness visual information to encourage good financial behavior.
How the Visual System Taps into Your Emotions
There is a strange phenomenon in neurology called Capgras Syndrome, where patients do not recognize loved ones but rather believe that they are impostors. Patients who suffer from this syndrome will, for example, claim that their spouse “looks” like their spouse yet swear that it is some impostor. What causes such a phenomenon? It is damage to the part of the brain involved in visual processing called the retrosplenial cortex. Whether this part of the brain is degenerated in an Alzheimer’s patient or damaged due to a stroke, patients have a disconnect between the visual system in the occipital lobe and the emotional memories located in the temporal and frontal lobes.
When you place a normal subject in a functional MRI machine (aka fMRI, a special type of MRI that denotes when a part of the brain is active), seeing a picture of their spouse (and assuming they love them), both the occipital lobes and the emotional parts of the brain connected through the retrosplenial cortex will light up. In patients with Capgras Syndrome, the occipital lobes light up, but the emotional parts of the brain do not.
So, there exist direct connections of the visual system to the emotional centers of the brain, and financial researchers have already applied this observation to retirement savings. Research by Professor Hal Hershfield at UCLA has shown, via fMRI imaging, that subjects who are shown an aged image of themselves create more of an emotional connection with their future selves and, when asked, make much more favorable long-term financial decisions!
(On a side note: upon reading this research, I actually used an app to make an aged photo of myself. I’m not sure it really affected me where I am investing more for retirement. But I didn’t look so good cosmetically, and I immediately put down a strawberry doughnut that I was eating at the time and went to my karate class that evening!)
Other Research on How Visualization Improves Finances
On a recent financial podcast of The Meb Faber Show, there was an interview with behavioral economist Dan Ariely about getting people in a remote village in South Africa to save money. Many incentives were tried, including matching contributions or having his subjects scratch on a coin anytime they contributed money to savings (the coin task involved a golden-colored coin with numbers for each week, and test subjects were asked to keep track of their weekly deposits by making a physical scratch on the coin).
Which worked best? The coin scratching! And the reason Ariely mentioned it was because it was using visualization to reinforce savings. Other incentives did not access the behavioral power of visual memory and encoding, not even matching contributions. Non-visual incentives just didn’t motivate as much as the coin-scratching task. Very powerful stuff!
How I Use Visual Neurology to Better Invest
As mentioned above, Jason Zweig confirms in his book how visual information ignites your reflexive system. As he writes, “A streak of electric green climbing up your computer monitor, or a lurid red line tearing down across your screen like a scar, will set off your brain's emotional circuits with a force that no dry row of type in a newspaper ever could.”
But who says that seeing red should maladaptively induce fear while green automatically creates elation? As a young investor 24 years away from retirement, I use my knowledge of the visual system to flip the emotions I feel when looking at my portfolio. When I see my portfolio green, I actually curse. That’s right! I check ITOT on my iPhone feed, and when it’s green, I induce negative emotional feelings. After awhile, it became reflexive for me to hate seeing green in the stock market! I text some fellow white coat investors some expletives as well. No joke.
Now when I see red, I celebrate. I immediately say, “Yes! Awesome!” I immediately text the same white coat investors oodles of joy. I think of my kids and how happy they will be when I leave a huge legacy to them and their kids because of the tanking stock market. I visualize the huge retirement house by the ocean with my wife and me overlooking the water, and I then text her that I love her. She usually replies, “I love you too . . . is the stock market down again?”
I also have a written financial plan. I have encoded through visualizing and constructing my financial plan what I do in terms of saving and investing. I have an emotional attachment to my written goals as I see what I am saving for. Whenever there is a bear market, I visualize my financial plan and know what to do. I know what my financial plan says and can picture the capitalized bold/italic font of what I am supposed to do: DON’T SELL/BUY MORE!
How’s this for a visual?
The following might help you when the market is tanking and stop you from selling during a bear market, via the method of Clinical Microbiology Made Ridiculously Simple. Dr. William Bernstein says that every young investor should get down on their knees and pray for a bear market. As I am writing this, I am getting down on my knees, a short, bald Filipino neurologist, and I am saying:
“Dear God, please let us have a long, deep bear market that will last a horribly long time, and never come back until five years . . . Mia, get back to bed! Meredith! Mia is down here! . . . sorry, my daughter interrupted the prayer . . . where was I? . . . Oh yes, not come back to its peak until five years before me and Meredith retire.”
What I have just done is accessed your visual pathway, so the next time you see that red arrow pointing down in your portfolio, you will think of this bald Filipino neurologist, falling to his knees like the falling of the stock market, praying to God (like Bill Bernstein recommended), being interrupted by his daughter and asking his wife for help. If you’re a spouse and a parent, you might take this visual from the occipital cortex through your retrosplenial cortex to the emotional parts of your brain, further reinforcing that bear markets are a good thing and that investing in them will ensure an inheritance to your children and a chill retirement with you and your spouse.
That's what I've been visualizing, anyway.
What do you think? Can you use the visual system to help achieve financial goals? Why or why not? Comment below!
Really?
Yep, really.
This was a great column.
Bev, if you have a beef with columnists and guest writers, I think you should at least demonstrate that you read the column by referring to specific elements. Or I suggest that you consider writing a guest column to defend your disagreements rather than continually trolling on the blog. We spend hours writing these columns, not seconds coming up with ways to put others down to make ourselves feel better; and WCI staff like Josh spend additional hours editing the columns. You don’t have to respect us, but if you respect the WCI, I think you should respect the paid staff at the very least.
You’ve made this comment on multiple posts in the past by multiple different authors. I’m curious why? It doesn’t add a lot to the conversation. But it has made you a topic of conversation in WCI content meetings: “I wonder what Bev will say about this one!”
Have you ever considered sending in a guest post? I suspect it might give you more compassion toward those who do write here. It can be a rough crowd. I wish we could be a little more supportive.
https://www.whitecoatinvestor.com/contact/guest-post-policy/
Ha! I am always wondering what Bev will say!
Gee I’m in retirement, time to start praying Dr. Racela’s prayers aren’t fully answered! (And please plan for this time when you have to have the opposite mindset- it is a tough transition.)
I had the same thoughts as I am planning to retire a lot sooner than Rikki!
Yes, I mention this to the head of my practice who is in his 60’s and planning to retire- he definitely hates it when I’m praying for a bad bear. then again, just like I’m sure you guys are, he is diversified with an appropriate stock/bond allocation. What is sort of distressing in our current bear is that bonds had tanked at the same time. Maybe I should add to the prayer for those potential retirees, ” . . . and have bonds go up.”
Excellent essay! Great points about how thinking in advance about how we will react to market events makes us less like less likely to panic and react in overly emotional ways. Really interesting an thought provoking to apply to neurology and psychology to investing.
thanks dude! I try 🙂
That was fascinating. I also appreciate something novel that was applicable. I laughed out loud at your kid interrupting you. Sounds like our kids must be about the same age! I’ll be picturing a bald Filipino in a gi with pink doughnut frosting around his mouth when the market declines and smile!
I also like chocolate frosted doughnuts as well . . .
Really fun and interesting dive into the neuro/psych aspects! Always great to understand the “why” or “how” something works. Thanks for a great read!
thanks dude
The most fascinating column I have read on this web site. Exciting and fun to think about how our brain can impair our investing results but how we can also use it to our advantage too. Thank you!
np! yeah it is sort of fascinating that our minds though highly adapted for survival, but are detrimental to wealth building. yet these same biases and heuristics also impair our ability to become great doctors and other high income professionals. and in order to become docs, we used our frontal lobes and system 2 to overcome our system 1, and in fact use system 1 to remember arcane facts by making pneumonics, funny visuals as I mentioned above, etc. As docs we’ve been using our system 2 to utilize our system 1 to our advantage, yet we don’t apply the same to investing.
Francis,
Thanks for your reply. I would suggest that the opportunity to provide feedback/comments on WCI posts be removed if the author or staff gets offended. Have a great day!
We’ve found an alternative method of eliminating “trolling” type comments from the thread without having to shut down the comments section completely. Basically, we approach people in a reasonable manner and ask them to stop it. If they don’t, then we block their IP addresses. Usually after using all the computers/phones in their house and hospital they eventually give up. I’m not sure your comments have reached that point yet, but consider this the “asking nicely to stop it” phase.
I will certainly take your comments to heart. Have a great day!
“How’s this for a visual?”
Well, Rikki has had many well written contributions and Josh has had some interesting stuff and a ton of humor tucked in. Don’t take this as throwing shade at either individuals.
Painting a picture with words is much harder than with pictures. Color illustrations are more effective than black and white. Charts and graphs with colors are much more efficient than illustrations .
Computer animation technologies and editing are really so effective in learning and retention.
Much of what was discussed was Psych 101 and Mgt 101 for memory, learning and retention.
Not much graphics, pictures or illustrations nor “Visualization tools” were used. The take away is like the amateur sports psychologists for a rec sports team. Close your eyes and visualize how you are going to be a hero.
Maybe it was the title that set unrealistic expectations. I was expecting a fireworks of visual presentation.
No such luck. At least show some graphics. Hey, the financial waterfalls illustrations are very effective in WCI. If you are discussing Visuals, use them. Not a slam, just this was an article about memory and suggestions. Might as well get into subliminal messaging.
If you don’t want feedback, feel free to delete.
ha! good point! oh the irony, an article on visualization without any visuals! Have to up my game by adding some picture suggestions thanks.