Are You a Dopamine Investor or Durable Investor?

June 10, 2024

We live in a dopamine infused culture.

Dopamine is the neurotransmitter that “help[s] us feel pleasure of the brain’s reward system.”1 This can be activated by social media and smartphones. And too much dopamine addiction from digital “drugs” can lead to depression and anxiety.2

One writer, who served on the faculty of Stanford, compares the differences between slow traditional culture, fast modern culture, and dopamine culture along with their impacts on anything from athletics to relationships in the chart above.3

We could add a section on investing:

SLOW TRADITIONAL CULTURE: Read about financial markets in a newspaper the day after the news happened or watch it on the 6 o’clock news. 

MODERN CULTURE: Watch it 24/7 on CNBC from market experts and call your stockbroker.

DOPAMINE CULTURE: Watch it, read it, click it, swipe it from a TikTok, Instagram Reel, Facebook post, or YouTube video from people creating financial media who might have an MBA from a reputable university or who might live in their mom’s basement straight out of high school. A constant stream of amateurs and experts on finance from any algorithm that fits your political, religious, and cultural tastes is at your fingertips. Pull up your trading app that lets you buy/sell at the push of a screen or swipe of a finger, as if you are playing a video game.

Dopamine investors make financial decisions based on the immediate present. An investment decision about your financial future is reduced to a swipe. Don’t think first and act later. Feel first and act immediately.

Day-traders get this dopamine rush often. One writer for Morningstar put it this way: 

On a neurochemical level gambling, day trading and speculation are not very different. Behavioural economist Sarah Newcomb says "there are certainly legitimate reasons for the occasional trade. Some trading is the result of long-term planning and the execution of a solid strategy. However, repeated studies, including Morningstar's annual Mind the Gap report, demonstrate that investors who actively trade tend to underperform the market.”4

Long-term investors will need durability over dopamine.

Durable investors make financial decisions based on the future. They make it through recessions, bubbles, and average economic cycles.

While the amount of investment information and financial education available to us is unfathomable to previous cultural moments, the flood of information itself does not necessarily equal positive financial choices or create wise actions. Choice overload and decision fatigue are real challenges for those living inside dopamine capitalism within the twenty-first century.

How do you become durable at investing when your brain is addicted to this seductive neurotransmitter? Practice fasting.

Dr. Anna Lembke, who wrote Dopamine Nation: Finding Balance in the Age of Indulgence, gave an interview where she described what this kind of fast looks like:

The intervention is basically, very simplified, and threefold.

1 Abstaining for a period of time from our drug of choice.

2 Learning to sit with discomfort, which is, of course, something that many different traditions teach.

3 Intentionally doing things that are painful: things that are physically hard and mentally hard.5

Nothing sells nowadays like abstinence, discomfort, and hard things. But durable investors will need to abstain from the constant drama coming through their devices (I’ve heard one financial advisor to financial advisors essentially call CNBC the Financial Pornography Network), sit with the discomfort of challenging markets and portfolio drawdowns and the constant hum of negative what-if scenarios from anyone with a financial platform, and intentionally do hard things like mentally thinking through investment decisions as they relate to future goals and cutting back on spending or adding to saving.

Durability may not be pleasurable in the moment. It may force you to say “No” to reactive, dopamine driven investment decisions, but it just might lead to long-term rewards.

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Sources:

1 “Dopamine: The pathway to pleasure”, Harvard Health Publishing, April 18, 2024. Accessed online: Dopamine: The pathway to pleasure - Harvard Health

2 Mary Beth Maslowski interview with Dr. Anna Lembke on Psychiatry Advisor on February 24, 2023: “Interview with the Author of *Dopamine Nation: Finding Balance in the Age of Indulgence”. Accessed online: Interview With the Author of Dopamine Nation: Finding Balance in the Age of Indulgence

3 Ted Gioia, “The State of the Culture, 2024”, February 18, 2024. Accessed online: The State of the Culture, 2024

4 Jessica Bebel, “Dopamine Rushes: is Day Trading as Addictive as Gambling?” November 23, 2023. Accessed online: Dopamine Rushes: is Day Trading as Addictive as Gambling?

5 See footnote 2.