How is Your Hippocampus?

Why does everything in the press these days seem to be a crisis? A crisis triggers emotions that have a powerful effect on people. The press has discovered this power and has become very good at triggering and manipulating emotions. Both the press and advertisers are fighting for shelf space in your memory. Emotions are a powerful link to memory.

Emotion and memory are closely related. You know this from your own experience. Go to a party, and meet a bunch of new people. Which faces are you going to remember? The woman who made you laugh? The man who made you feel embarrassed? Your new boss? — You remember the ones who made an emotional impact.

Thus, you would not be surprised to learn that the system of the brain that controls emotion, the “limbic system,” is also in charge of transferring information into memory. Even further, from years of experiments and surgical experience, we now know that the specific location for this transfer is a portion of the temporal lobe called the hippocampus.

Hippocampus

The hippocampus is a small organ located within the brain’s medial temporal lobe and forms an important part of the limbic system, the region that regulates emotions. Psychologists and neuroscientists generally agree that the hippocampus plays an important role in the formation and indexing of new memories about experienced events. Part of this function is hippocampal involvement in the detection of new events, places and stimuli. This is partly why returning to a location where an emotional event occurred may evoke that emotion. There is a deep emotional connection between episodic memories and places. The hippocampus is responsible for processing of long-term memory and emotional responses. We would not even be able to remember where our house is without the work of the hippocampus. The hippocampus also encodes emotional context from the amygdala.

Amygdala

When you think of the amygdala, you should think of one word, fear. The amygdala is the reason we are afraid of things outside our control. It also controls the way we react to certain stimuli, or an event that causes an emotion, that we see as potentially threatening or dangerous. The amygdala is a limbic system structure that is involved in many of our emotions and motivations, particularly those related to survival. The amygdala is involved in several functions of the body including; Fear responses; Emotional responses; Hormonal secretions; Arousal; and Memory. The amygdala is involved in the processing of emotions triggering the fight or flight response.

The Fight or Flight Response

During the fight-or-flight response, the amygdala takes over. The structure causes the adrenal gland to release epinephrine into the bloodstream, along with other hormones like; signals the heart to pump harder, increasing blood pressure; opening airways in the lungs; narrowing blood vessels in the skin and intestine to increase blood flow to major muscle groups; and performing other functions to enable the body to fight or run when encountering a perceived threat.​ Many bodily functions take a back seat during the fight-or-flight response.

The term perceived threat makes an important distinction and brings up a critical point to remember. As in the case of chronic stress, the body’s stress response is triggered repeatedly on a daily basis in response to actual physical and psychological threats as well as perceived psychological threats. As a result, the body can become exhausted, and the overabundance of epinephrine and cortisol (as well as other aspects of the body’s stress response) can become maladaptive, resulting in lowered immunity and other health problems. Hyperactivity of the amygdala has been associated with fear and anxiety disorders.

Fear is an emotional and physical response to danger. Anxiety is a psychological response to something perceived as dangerous. Anxiety can lead to panic attacks that occur when the amygdala sends signals that a person is in danger, even when there is no real threat.

How do you let fear affect your investment portfolio?

In February, markets were sitting at the top of a bull run that began years ago. Suddenly, the release of some macro-economic data sparked fears of inflation and higher bond rates. This fear caused a panic that lead to the S&P 500 dropping from its high at 2872 to 2581, a 10% drop. Markets had begun to recover into March when the “f” word reared its ugly head again, this time in the context of a trade war with China. What changed in the market? The companies were still making as much money. They were still paying the same dividends to shareholders. The difference was fear and its ability to cause panic selling.

Some investors have positioned their portfolios defensively for a big portion of this nine-year post Financial Crisis bull market. Some have been afraid that a recession is “just around the corner” allowing their amygdala to rule the day and missing opportunities for years. A little bit of research might have helped these investors have confidence in a long-term strategic portfolio that does not rely on market timing. For example, according to Ned Davis Research, the stock market has declined 5-10% 77 times in the last 70 years. It is practically an annual event. On average, the recover from these levels has taken one month, assuming you did not get scared out of the market.

What would your hippocampus say?

The hippocampus and amygdala work in concert to consolidate our emotions and long-term memories. This process is critical for evaluating information in order to respond appropriately to situations. However, the amygdala has a trump card! Whenever a possible fight or flight emotion is perceived, the brain’s nutrients, blood flow, and oxygen are directed to the amygdala. This saps the other parts of the brain clouding creativity and rationality. The brain becomes less concerned with painting the next Mona Lisa when it perceives a possible attack by a lion. Remember this when viewing the next “crisis” on the news, or the next irrational drop in the stock market. Is this really a crisis? Are you being manipulated? What would your creative, rational hippocampus say?

In 2002, Equitas Capital Advisors, LLC was established as a unique company that blends the resources of a large global corporation with the flexibility of a small boutique firm. The registered service mark of Equitas Capital Advisors is Engineering Financial Solutions® and the purpose of Equitas is to design, build, and deliver investment solutions to meet the goals and objectives of our investors. Equitas Capital Advisors, LLC located in New Orleans, has over 200 years of combined investment management consulting experience providing professional investment management services to investors such as foundations, endowments, insurance companies, oil companies, universities, corporate retirement plans, and high net worth family offices.

Disclosures and Disclaimers:
Above information is for illustrative purposes only and has been obtained from reliable sources but no guarantee is made with regard to accuracy or completeness. It is not an offer to sell or solicitation to buy any security. The specific securities used are for illustrative purposes only and not a recommendation or solicitation to purchase or sell any individual security.

Equitas Capital Advisors, LLC is registered as an investment advisor with the U.S. Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and are subject to change. This publication does not involve the rendering of personalized investment advice.

Charts and references to returns do not represent the performance achieved by Equitas Capital Advisors, LLC, or any of its clients.

Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.

All investment strategies have the potential for profit or loss. There can be no assurances that an investor’s portfolio will match or outperform any particular benchmark. Past performance does not guarantee future investment success.