Trusting your Intuition in Financial Markets

• Posted by DynamicHedge
• on August 29th, 2017

I think the world has gone way too far in shutting down intuition when it comes to investing. Everything is passive and disconnected.

We all know the story: Humans evolved cognitive processes and intuitions suited for our days on the savanna. We can’t trust our intuition because it was honed for a time when we were being chased by woolly mammoths.

From the reams that have been written on behavioral and emotional bias we could easily conclude that our intuition does nothing but lead us down a cognitive dead end.

I get it. Everyone can think of a time they “trusted their gut” only to have things go completely sideways. It’s easy to feel stupid for following “feelings” (although, you were probably just being lazy or getting caught up in some hype!).

I’m a part of the problem! I even have a robot as my avatar!

The truth is, our brains and bodies are the product of millions of years of iterative processes optimized for survival, social cooperation, and countless other things. Our brains got us pretty far. There are deep reservoirs of ability to be tapped into.

Yes, I still think we have blind spots that we need to be aware of. And I still think no amount of intuition can substitute for doing the work. No shortcuts!

But don’t shut out intuition. Trust your gut. Whenever I’ve gone AGAINST my instincts, I’ve regretted it.

I think one problem is that most of us don’t know how to differentiate between feelings that are emotional fight and flight responses and real intuition.

Here’s how I think about it:

A “gut feeling” accompanied by a simultaneous memory of an external thing like a news story, something mom warned about, or the fear of loss/FOMO, can be ignored. This is NOT your intuition speaking. It’s either a tiny snippet of logic yanking at the enteric nervous system or outdated ego protection software running in the background. Pure noise.

However! A “gut feeling” 1) Based only on what you are observing in the moment, 2) unstructured and without external context, and 3) definitive. You can trust that as intuition. Now I know this is hard to define. What I can say is, legitimate intuition comes from information synthesis too complex or too urgent for rational thought. It arrives without shape or context in the form of a feeling. But intuition has a funny way of keeping you safe and on the right side of things. Especially when it comes to judging people.

Not foolproof! And difficult to reconcile that the more imprecise the feeling, the stronger the signal, but it tends to filter out a lot of bullshit and false signals.

Trust your gut!

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