We humans are funny animals.
We've ascended to the top of the food chain, thanks to some evolutionary developments our other animal cousins have yet to master, and have somehow come to realise that by working together, we can achieve more than by working alone.
We also seem to be the only species that can meaningfully imagine the future, and likely the only ones with any decent sense of introspection.
(I say all that as someone who didn't study Biology past Year 8 at school, so apologies for the gross generalisations. Please, professional zoologists, don't send hate mail.)
The funny thing is that, despite all of those benefits conferred to us as our ancestors learned how to leave the trees, we're still not very good at mastering our own biology.
Or at least not good enough. At least not yet.
No, I'm not talking about our complete inability to prioritise planetary survival over a little tax break or mates in the mining industry — though I could be.
And I'm not passing judgement on the Labor party's belief that Bill Shorten — conscientious and eager though he was — had enough charisma to actually win government.
I'm talking about — no drumroll required, thank you band-leader — investing.
See, we have the mental capacity to imagine ourselves a decade or two (or three) into the future. We can look at others and think 'That'll be me in a few years' time'.
We're able to wonder what will happen to us when we can — or choose to — no longer work.
Importantly, we can also conceptualise the idea of compounding, and understand that, over time, money makes money.
And yet.
And yet, knowing these things is different from actually being able to put them into action.
It's the big night on the grog, and the hangover the next day.
Driving too fast, and the (almost) inevitable blue and red lights in the rear vision mirror.
It's eating too much. Doing no exercise. Spending too much time in the sun.
The online shopping splurge after midnight and one or two shandies.
The list goes on.
We know these things, yet we can't always bring our rational brains to bear over our emotions.
In finance, we only have to look to our inability to make good money decisions.
The new phone you just have to have.
The new car you don't really need.
The house you can only just afford.
None of these is a rational decision. But we — yes, me included — make irrational financial decisions all the time.
In investing, it's things like buying shares in an expensively-priced company just because the shares are going up. (Or worse, because your brother-in-law is making money from them, and you just can't stand to see him getting rich when you're not.)
It's also watching share prices rise, and telling yourself it's too expensive…
… then watching them fall and telling yourself you'll buy when they stop falling…
… then watching them rise again, and kicking yourself for missing out…
… only to watch them keep on rising, and telling yourself it's too expensive…
(What I like to call the 'Then fix it, dear Henry' problem)
Or it's the housing bears who said property was too expensive back then, but aren't buying now, even though Sydney and Melbourne house prices are well off their peak.
(And combined with rate cuts, more affordable than they've been in many, many years. Just don't try to tell the ideologues.)
Yep. We're smart.
Intellectually speaking.
But our evolutionary past, and our emotional present can very easily take our financial future hostage.
The good news? (And yes, there's good news.)
We can triumph over biology. At least, some of our biology.
No, I can't regrow my hair. And I can't magically speed up my metabolism.
But, with a little sleight-of-hand-that-really-isn't, we can win this game.
The prescription? It's twofold:
First, do your future self a favour by making your saving and investment decisions automatic.
Get the boss to put a portion of your wages or salary into a separate investment savings account on pay day.
Or schedule an automatic transfer when that cash hits your account.
Use cash — remember that? — when you go shopping, so you can't overspend.
Get your dividends deposited directly into that same investment account I mentioned earlier, so you're not tempted to spend it.
They're what the psychologists call 'pre-commitment' devices. It stops Future You from having to struggle with the desire to go and blow all the cash on something else.
Second, and this is important once you have a share portfolio, do a little imagining of that future.
Imagine what it's going to feel like when your portfolio falls 10%
20%.
40%.
Feel it now, so it won't be as painful when it happens. No, not if, but when.
It's happened before. It'll happen again.
Now ask yourself: Do you really want to own those shares if they're going to fall? Do you still like that company at lower prices, if the gloss comes off.
And, most importantly, is the company really worth today's price? Or are you just riding a wave that is unsustainably high, and won't return to these levels after the fall?
It's another form of pre-commitment — this time doing your future self a favour and making sure you'll be happy to hold those same shares when the tough times come.
I don't (yet) have a Tardis. Or a suitably equipped De Lorean.
So, I'm doing the next best thing — making my future self happy, by doing the right things now.
My wife and I are saving a set amount every fortnight. We're depositing it directly into an investment account.
We're always looking for the best long-term investments: sensible prices for quality businesses, generally speaking. And we're letting time do the work, doing our best to ignore volatility (unless it throws up opportunistic chances to buy or sell at irrationally good prices).
Which, not surprisingly, is how I run Motley Fool Share Advisor for our members.
See, where we're going, we'll (probably) still need roads. We can't go back to the future, but we can create our own futures — and the magic comes from doing the right thing now.
Future Scott is looking forward to hearing your success stories.
Fool on!
