Curious On How Our Memories Work?

There are two opposing poles to how our memories work – one is that our memory is limited in which stuffing useless information eats away our storage space and the other, is that our memory is an infinite chasm that can be occupied.

With recent developments in neural scanning technology, it is seen that there is no one part of our brain that contains our memories. Our past experiences are all stored in different regions of the brain and all these pieces up into what we view as memory. When we remember the most pleasant meal we had, our visual cortex stores our sight, the olfactory cortex contains the smell, and the gustatory cortex recollects the taste.

Memory is an action and a process that is only generated by interactions between neurons and not stored in any one neuron. Think of it as how in order for a tessellation to work, no one dot is a pattern but with many dots all around with different permutations of linkages, we form a tessellation. Similarly, our memory is a combination of firing from different neurons and thus our memory can be as much as the permutations of all our brain cells combined – as good as infinite in our lifetime.

However, most of our memories are created by the hippocampus – yet it is not where memory is stored. We often reconnect the links of our experiences in our heads, playing them in fast forward modes, so as to consolidate new memories and to park them aside. Coming across the same event or stimulus will then reactivate our memory to further fortify our memories.

The brain’s way of creating memories is susceptible to false memories since our brain will recreate the experience to how we imagine it to be. A fake memory can be easily created. With a few pictures on the newspaper or online article, along with vivid and elaborate words to depict the situation, we can imagine ourselves at the scene of what was being portrayed. And, if we were to start thinking about the situation or dream about it at night, our brains may slowly categorise those memories as a real memory.

We remember a lot, but we forget even more whether by choice or by nature.

First, our brain cells may start to produce weaker connections over time or that despite the memory still being there, we now lack a stimulus or trigger to retrieve the memory from our minds. These memories that are “left behind” but forgotten may interfere with other memories and thus either convoluting the original memory or the new memory.

Second, our brain also chooses to forget unimportant information as we have our snooze at night. Because there are simply too many things to remember or to take note during the day, our brain removes the unwanted pieces of information.

Lastly, we also forget traumatic memories or negative events to put behind the past – and this blockage is assisted from the dorsolateral prefrontal cortex, ventrolateral prefrontal cortex, and the parietal cortex. It is important that these negativity gets removed from our minds just so as to ensure that we can move on and carry on with our day-to-day lives, treasuring current relationships, and to plan for the future.

In relation to investing, we are also prone to the effects of our memory. The more optimistic, risk-seeking individuals may first endure losses (like we have seen across Jan’22 to Mar’22). However, they soon forget that they have incurred hefty downsides from weaker neural networks and to them, this information may be less-than-important, and the brain removes these unpleasant memories throughout the night. And, because of how these are negative events, their brains may start blocking out memories of large losses. It is especially true when individuals do not have the time to check their brokerage accounts daily. In these times of drawdowns, individuals may unwittingly assume that they are not too deeply in losses or that fundamentals have not yet changed. A slight correction upwards and they may assume that the market is back up or that their investments are in the safe zone. You’ll be surprised to see how many investors are holding onto falling knives without remembering what their first assumptions are or the cost price at which they bought.

Yet, another type of memory that could persist for a very long-time and haunt investors could be very similar to that of Post-Traumatic Stress Disorder (PTSD) where individuals recall too much for a particular investment they have made. Because of the infusion of highly regrettable investments, investors may be scared and scarred to make wiser decisions in the future. They will be bogged down by their past recklessness or mistakes and start to have themselves fall into a decision paralysis when encountering a new investment opportunity without realising that it is an entirely new ball game.

We have to be wary of what our memories tell us. A fool-proof way we can adopt is to consistently track the total assets within our accounts and to keep stock of movements across individual stocks that we have selected. It would be noteworthy to explore how our memories can influence how we make decisions as well post-the-fact. Will it stir in us unnecessary fear or exuberance?

If you're interested to chat on this topic or to exchange ideas, please feel free to drop me a message on Telegram @elijah2212, LinkedIn, or through email elijah.thj@gmail.com!

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