We know Wall Street is at war with Main Street America. In military terms it is a “Psy-Ops” or “psychological operations” war, by nature mysterious because it is fought in the shadows, by enemies who appear and disappear suddenly—like phantoms, stealth bombers, ninja assassins, like Iraqi insurgents and U.S. Special Forces inside Iran. Secrecy are essential to their successes. We are taking a totally different approach to this “war.” The popular press focuses on the weapons used in this psych-ops war by various names: behavioral finance, investment psychology, neuro-economics, the “new science of irrationality,” brain research, propaganda, and other esoteric names. In the past decade there have been many excellent books and ongoing press coverage of this new and rapidly evolving field.

The false and misleading promises of neuroeconomics
But so far, the works aimed at helping Main Street investors have approached the world of behavioral finance with one core assumption: If you, the investor,simply become more aware of your irrational behavior, apply some simple psychological rules, minimize that self-sabotaging behaviors, and act “less irrational,” then you will be able to beat The Street, beat the market, beat the averages … become a winning investor and get rich. The thrust of these earlier behavioral finance books is simple: A little education on behavioral psychology, a lot of self-discipline and that good old American “can-do” spirit! The implication is, of course, that if you, or any other of America’s 95 million Main Street investors study hard, understand and practice the basic tools these experts teach, you will be reborn “less irrational” and fully capable of “outwitting the markets.”

Unfortunately, you can’t fix an irrational mind using the brain’s own “flawed rationality”—certainly not against an enemy — Wall Street’s Happy Conspiracy — that’s doing everything it possibly can to keep Main Street investors ‘irrational and woefully uninformed,’ which is a clearly stated goal of behavioral finance psychologists and quant mathematicians now working for Wall Street. Seriously, ask yourself: Can Main Street investors ever “fix” their brains, make themselves more rational and beat Wall Street? The correct answer is “no,” but that’s not the real problem with behavioral finance.

Main Street will never win a head-on battle against Wall Street
The press, media and pundits all operate from the false assumption that Wall Street and Main Street are fighting this war on a level battlefield, equipped with equally powerful weaponry—and that if the Main Street investor just studied hard, understood and applied some apparently rational tools to his irrational thought processes, he will become a winning market investor. Sorry folks, but that is pure fiction. In a head-to-head battle, this psych-ops war is a total mismatch—what the military refers to as “asymmetric warfare”— a disaster for Main Street, like walking the streets of Baghdad alone.

Forced to fight ill-equipped and alone, the average investor doesn’t have a chance against Wall Street’s overwhelming firepower and organization. It’s not a fair fight. Wall Street has a 100:1 advantage in weapons, strategies and the ability to control the odds. Main Street, on the other hand, has no allies and no armies fighting on its behalf. We are fighting solo, armed with muskets against the Wall Street War Machine with its equivalent of stealth bombers, bunker busters, Apache GunShips, NightVision, satellite-guided cruise missiles and more. But … if Main Street doesn’t get suckered into fighting Wall Street on Wall Street’s terms, indeed, doesn’t fight Wall Street at all … the rules of engagement, and the chances of beating Wall Street increase.

You cannot “fix” an irrational mind with “rational tools”
Unfortunately, the media, press and behavioral finance experts continue reinforcing the old strategies, rules and tools that keep the Wall Street War Machine in business—by supporting the illusion that if all those 95 million “little guys” investing all over Main Street America just got a little “less irrational,” a little more disciplined, they could overcome the handicaps of their irrational and woefully uninformed minds and win. (More)