I can’t tell you how many times I’ve told a client, or a live or television audience over the years that virtually every investment mistake that I have personally observed has been the result of a pure act of emotion (there’s an essay in my 2007 book titled “Never Trust Your Instincts When it Comes to Investing”). That would be greed (or the emotions that lead to greed), as in abandoning one’s allocation target and/or overweighting a given stock, commodity or sector during a bull market. Or fear, as in abandoning one’s allocation target and—rather than buying asset classes on the cheap (the refusal of which is bad enough by itself)—panic-selling and tucking everything away in a money market account.

I don’t know how I missed this one back in 2005 (HT Charles Wheelan); when a team of researchers from Carnegie Mellon University, the Stanford Graduate School of Business and the University of Iowa, published a study finding that folks who have suffered brain damage resulting in impaired emotional capacity, but with their logic and cognitive reasoning intact, are better investors than folks with fully functioning brains. The authors of the study believe that the emotionally-impaired investors experienced better results due to their lack of experiencing fear or anxiety. They took more risks when it made sense and suffered no emotional scarring when experiencing losses.

Here’s a snippet from the linked WSJ article:

Some neuroscientists believe good investors may be exceptionally skilled at suppressing emotional reactions. “It’s possible that people who are high-risk takers or good investors may have what you call a functional psychopathy,” says Antoine Bechara, an associate professor of neurology at the University of Iowa, and a co-author of the study. “They don’t react emotionally to things. Good investors can learn to control their emotions in certain ways to become like those people.”

As bias-confirming for me as that study was, there’ll be no outright fist-pounding on my part over a study comprised of only 41 subjects. That said, and I reiterate, my anecdotal findings—over 29 years of first-hand experience with better than a thousand investors—is that folks who stick to a disciplined asset allocation strategy, through the ups and downs of every business cycle, see vastly better results than those who let their emotions dictate their investment decisions.

Look at it this way: How many times has someone pushed your button, you emotionally react, and later—after your blood stops boiling—you find yourself wishing do-overs were possible? You know that had you thought before acting, you (and the object of your aggression) would have had a much healthier, far less destructive, experience. That’s what can happen when you catch some Dr. Doom (there are several pundits who wear that moniker) on CNBC telling the world that stocks are on the precipice of a bear market that’ll make cake out of 2008; I’ve received anxious phone calls from clients—asking for an emergency exit strategy session—on such occasions. Or when some Dr. Sunshine tells the world that stocks are about to embark upon an advance that’ll make chopped liver out of the 90s; I’ve received anxious phone calls from clients—asking whether we should abandon their cash (or bond, CD, etc.) position and go all in—on such occasions. In both instances the investors’ emotional buttons had been pushed, and, consequently, they had lost complete sight of the fact that no mere mortal, or algorithm, can know the market’s near-term direction. It’s the instances where they followed through on their emotional impulses and, thus, abandoned their disciplines, that the damage was done. Not, mind you, that the market didn’t sometimes collapse, or advance, as guessed (which, on occasion, had brought other clients’ emotions to the brink); the damage was nonetheless done even in those instances—it’s just that the realization was delayed until the inevitable next emotionally-inspired investment decision was executed.

Keep this in mind as the market meanders its way into 2014…