Your behavior affects the markets!
You're thinking to invest... think again, there are many in this boat
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Ever had the experience of sitting at your desk, getting innovative ideas, new perspectives on how you live, and plans to better yourself? However, in the end, you see your phone lying beside you and retort to scrolling endlessly and mindlessly to all the short-form content this generation has to present. Where did all that enlightening talk go? Where did all those plans to change go? Now, all that remains is regret and the risk of falling behind. The urge to take action always exists but the implementation is where you subjugate to the atrocities these generational changes have surrounded us with.
This has to do with our psychology and how our brain has to adapt to this fast-paced world. Our hormonal levels are affected and our neural circuitry changes. The way we make decisions, the way we analyze the world around us, and our motivation, drive, and thoughts all of them are influenced by the habits and routines we have fabricated for ourselves, and the society around us plays a pivotal role in constructing it. These habits and routines if projected on the entire society can lead to a shift in dynamics that lead to colossal repercussions.
Dopamine: the most valuable currency of today
The most crucial hormone that severely affects our progression as a society is dopamine. Sadly, today we live in a dopamine-deprived society. The level of knowledge a typical individual must have and his contribution to society is a great measure of world production. Now, it differs over geographical locations but one thing is for certain: companies seeking massive profits have capitalized on the one thing we direly need for better progress, focus.
Dopamine has its operation in cycles. So, it is apt to think of human behavior guided by a series of blueprints for every phase of the cycle. These phases are seen in markets, in governments, in the formation of civilizations, and in our individual lives. the problem is most humans, instead of learning the rhymes of history end up facing life from a fresh start every time, forgetting what the past has taught us.
Willpower, drive, and motivation are due to our levels of dopamine. When you make up your mind to do something, dopamine spikes forming an upward hill. The height of the hill depends on the importance of the task to you. Then is the learning contingent phase which separates the peak and trough of the release. This phase is marked by your knowledge acquisition of how the task has to be done. Then there is the downward phase where dopamine goes down the amount it went up. This phase is marked by laziness, boringness, and lack of enthusiasm. You just have to wait for the dopamine to come back to baseline. Raising your dopamine baseline is the goal as it allows you to have an optimal level of optimism in facing life’s activities. That can be done through adequate sleep, a healthy lifestyle, and dietary changes. In today’s world, we are facing a dopamine hunger because of the short-form content we consume and have been attuned to less rigorous activities.
The level of dopamine that is released depends on your anticipation of the reward. Like if you expect something of great pleasure in return, higher will the peak of dopamine be. In the contingent learning phase, it depends on how much you prolong it and how easily the reward is obtained. If the feedback is better than you expected then the dopamine baseline will be elevated. If it is as expected then dopamine will fall to the baseline it had already and if it was not as expected, it will fall much below it. In the case of the use of a drug or cigarette smoke, the dopamine spikes and then troughs relatively quickly with a much less contingent learning phase. This is the reason you feel a sense of regret after doing the act. Similarly, watching short form is addictive as it gives the dopamine spike but the value falls after you stop scrolling which is why you feel a sense of regret. Only non-self-aware people don’t. Dopamine is the universal currency nowadays and we should learn to better safeguard it.
Your behavior in the market
Now let’s view the market trend specifically crypto through this modified lens. You have anticipated crypto as a game changer, the one thing that will defy other investments and make you rich. Your anticipation of the reward has been high and you dismissed anything critical. You have been swayed by the enormous amount of promises that were quotidian in the bull market bonanza. This is the ultimate technology that will change the way things work. Hence, your dopamine levels shot up and gave you a burst of motivation. They have been able to override all your other cognitive senses and the bias is strengthened by all the talk in promoting this technology.
Alas, the spike has to return to its baseline. This is seen after the realization that something is not in place. The spike has been seen and now comes the learning contingency phase where you dwell into the insides of the industry, realize the inner workings, and see the difference between facts and rumors. You learn about how investments work and see intrinsic value in them. You start managing your money better and understand the true meaning of diversification.
And then comes the most dreadful phase. the downward trough. This is the time that is marked by listlessness, inaction, and contemplation. You have loads of regrets, start to question things, and are infuriated by your current state. And most importantly, this phase is inevitable so you have to go through it. It seems like we are in this phase of the market where most new people who entered seeing the 2020 mania phase are facing the first dip in their emotional responses caused by the market.
Deal with it!
Normal human psychology dictates our present existence. We are here at this pinnacle because of how our minds have been shaped by all the cycles that we have inevitably encountered. Going through the downtrodden phase is surely difficult but what is important to realize is that it always follows a peak phase so you have to pass through no matter what. Controlling your emotional responses and focusing on what matters is necessary. Like Vitalik emphasized the acquisition of technical knowledge at this time of the market cycle. Mr. Market, as Benjamin Graham puts it in his book, The Intelligent Investor, will continue to haunt you and persuade you to make the wrong decision.
Emotions are important, they amplify our outlooks toward life. But what is crucial is the understanding that they are primarily required in our interaction with others and how to better stand in society. There are other logical instances where emotions must only be limited to the sidelines. Only then can we achieve a balance of emotional and intelligence literacy.
Self-awareness is pivotal here. If you realize which phase you are in and what phase will follow, you can easily navigate your surroundings and stay ahead of the curve. Real riches are made there.