Fear Is in Our DNA — When Investment Fears Takeover

Supported by dubious history, and fearful of Australia’s geographical remoteness from the centres of civilization, with little or no analysis of the long term policy consequences available, the dominant part of the Australian political class was busy laying the foundations for a nation that would withdraw into itself, with political programs that, in the words of Alfred Marshall, had as little chance of achieving their objectives as the “potent medicines of the charlatan”.

The White Australia policy had already closed the country to coloured immigrants. Labour unions would make it clear than even non-coloured immigration might be undesirable. The tariff, as yet mild, in principle aimed at the restriction of trade, and Lyne and his supporters wanted it raised much higher. There were even extremists who urged “prohibition” of trade.

Democracy and distance were now encouraging a rampant parochialism in the policies of the new nation. Walls against the world were being constructed on the assumption that behind them, safe from competition in both products and labour markets, and from racial mixing, Australia would prosper.

“Orthodox economists” were ridiculed without a defence being offered. With the Melbourne University chair of political economy moribund, and no other department of economics on the continent, little contrary economic analysis was forthcoming from Australian voices.

That’s an excerpt from David Kemp’s five-volume history of Australian liberalism. It’s from volume three, A Democratic Nation, which covers the period from 1901 to 1925.

As Bill Bonner often writes, ‘plus ça change’…

The period referred to was in 1903, just after Edmund Barton resigned the prime ministership, replaced by the protectionist government of Alfred Deakin.

Fear of the big, bad world appears to be in our DNA…

And aren’t the politicians (and mainstream media) milking that fear for all it’s worth?

All of Australia (bar Victoria — oh the irony! — and Tasmania) are in some form of lockdown. Even Alice Springs, with one ‘case’, has shut up shop.

Where does insanity come from? What makes a normally rational society go off the deep end?

In a word: Fear.

Fear is a political expedient. Because it is one of the strongest emotions, it is used to coerce and control.

It is the same emotion that makes us do dumb things as investors. Fear produces neurochemicals in our brains that more or less hijack our neocortex (the rational brain).

I wrote about this in my book, You, Your Brain, and the Stock Market.

In her book, I, Mammal, Dr Loretta Breuning writes:

“Humans have a big cortex and a big capacity to learn from experience. But we cannot short circuit our mammalian limbic system. Our cortex gives our limbic system information to make better decisions, but our limbic system still controls the neurochemicals that link mind and body. Our actions ultimately come from our neurochemical selves.”

What are these neurochemicals? I’ll classify them into two groups. Let’s call them:

1. Fear (or stress) chemicals, and

2. Greed (or happy) chemicals.

From an investment perspective, these are the chemicals your brain releases (via the limbic system) at extreme highs or lows in individuals’ stocks, or the stock market as a whole. These chemicals override your rational brain and make you do things you later regret.

They make you buy at the top and sell at the bottom. Which is really annoying.

Knowing what these chemicals are, how they work and why will give your rational brain your cortex the best opportunity to override the evolutionary survival impulses fired off by these neurochemicals.

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Let’s have a look at what happens when fear takes over. Fear results in your body releasing adrenaline and cortisol…

The adrenaline gives you a surge of energy. This is why you have trouble sitting still or thinking calmly when you’re in this situation. Cortisol is known as your “stress hormone”. It is also produced by the adrenal glands.

Cortisol takes a little longer for your brain to release than adrenaline, which is immediate. That’s because it is a multi-step process. The amygdala (the fear centre of your brain) recognises a threat and sends a message to your hypothalamus.

It then sends a message to the pituitary gland, which in turns sends a message to the adrenal glands to produce cortisol. I don’t know why it’s a multi-stage process. But I’m not going to argue with a few billion years of evolution. I’m sure the brain has its reasons.

In effect, stressful situations, like stock market crashes or high levels of price volatility, result in the production of both adrenaline and cortisol.

The production of these chemicals is an evolutionary design to get you out of what has historically been a more pressing threat than a wobbly stock market.

They are designed largely as a response to a physical threat.

Let’s have a look at the physical effects of an increase in stress hormones. Adrenaline increases the heart rate and engages the muscle and respiratory systems. Cortisol, on the other hand, increases glucose levels to the muscles, and temporarily inhibits other body systems, including the digestive, reproductive and immune systems.

This is why those suffering from “chronic stress” too much production of cortisol suffer physically because other important systems (for example, the digestive system or immune system) are on hold to fight the perceived threat.

There is little doubt that the constant fear of the past 18 months, plus the lockdowns that have threatened so many livelihoods, has created chronic stress in society.

I should say more chronic stress. Even before this virus escaped from a lab in Wuhan, chronic stress was on the rise. Excessive debt, insecure employment, two-income households, kids in daycare…

It’s no surprise that chronic illnesses are on the rise. Meanwhile, our ‘healthcare’ system treats the symptoms, not the cause.

Without health, you have nothing. Without health, thinking about wealth and building it for your family is a secondary concern. Health is everything.

So here are a few tips to lower your cortisol and improve your well-being:

  • Turn off the TV (especially the news)
  • Take vitamin D (or get some sun when it’s shining)
  • Finish your showers with a two-minute blast of cold water
  • Eat more greens
  • Exercise
  • Consider fasting one day a week (I’m psyching myself up for this one)

I’m not a doctor, of course. But common sense should tell you whether these things are beneficial for you or not.

At the end of the day, we should be able to live our lives free of fear and coercion and be responsible for our own decisions. Even our early politicians, reared in the classical liberal tradition, would have agreed with that.


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Greg Canavan,
Editor, The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.

Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

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