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!