I have heard about an article you wrote in The Spec which contained a quiz about right-brain, left-brain investing and I have been unable to find the article. Can you reprint that quiz, and secondly, have you ever heard of the ‘disposition effect’?

June G., 52, is a sales assistant in Hamilton looking for growth from a portfolio that’s “just not big enough.” She asks: “I have heard about an article you wrote in The Spec which contained a quiz about right-brain, left-brain investing and I have been unable to find the article. Can you reprint that quiz, and secondly, have you ever heard of the ‘disposition effect’?”

The quiz you speak of was in an article about the The World’s Smartest Man, that left-brained creature who can be measured by IQ, math, accounting, languages and science. His liabilities, however, centre around his lack of right-brained perceptions which are intuitive and artistic, nonsequential, with gut feelings.

In actual surgical cases where a diseased right side of the brain has been totally removed, patients often show little or no declines in IQ scores.

By applying left-brained logic to the illogical stock market, investors are often using the wrong tool for the task. When making investment decisions it is advisable to stop and ask which side of your brain is running with the ball.

Anyway, here it is.

Picture four volumes of Shakespeare’s collected works sitting on a library book shelf, I, II, III, IV. The pages of each volume are exactly two inches thick and the covers are 1/6th of an inch thick. A bookworm started eating at page one of volume I and ate through to the last page of volume IV. What is the distance the bookworm covered?

As for the “disposition effect” part of your question: it ruins many portfolios. If an investor owns two stocks, one in profit and one in loss, and he or she needs money, which stock will they sell?

Research has shown that if an investor must sell a stock, they will always pick the one showing a profit, not the loser.

This behaviour can and does cost investors thousands of dollars in lost profits.

Instead of cutting losses and letting profits run up, the average investor does just the opposite.

The reason is psychological. As long as they can avoid selling a loser, they rationalize that the stock will recover, vindicating their decision to buy since they would rather lose money than admit they were wrong.

Immunize yourself against the disposition effect and understand that if a tossed coin comes up five heads in a row, most investors feel a tail is probable on the next flip. That’s what you’re up against.