Episode summary
Your Brain is the Worst Investor in the Room — ft. Scott Nations | Prof G Markets
Prof G Markets
· · 51 min · Hosts: Ed Elson, Scott Galloway · Guests: Scott Nations
Summary
Scott Nations argues that investors are wired to make bad decisions because evolution prepared humans for survival, not portfolio management. He says biases like loss aversion, the disposition effect, herd behavior, and availability all push people toward selling winners too early, holding losers too long, and chasing whatever is most visible or socially rewarded. He cites research that these biases can reduce returns by 150 basis points a year.
The conversation also explores how narrative can overpower valuation. Scott Nations says stocks tied to famous founders can become “fantastic objects,” with Tesla as the clearest current example, but he warns that stories work only until they don’t. His answer is to rely on process rather than instinct, and to treat the stock market as a long-term weighing machine instead of a short-term voting machine.
Looking ahead to 2026, he sees AI as the dominant market theme, possibly a bubble but one that could be “grown into” if the technology changes finance as he expects. His biggest concern is inflation and the pressure on the Federal Reserve to cut rates even though inflation remains above target, which he thinks could inflate asset prices beyond fundamentals. He is also wary of private credit, which he says is large, opaque, and potentially dangerous if problems spread through the financial system.
Key takeaways
- Scott Nations says human psychology is structurally bad for investing, and he estimates behavioral biases cut returns by 150 basis points a year.
- He warns that the disposition effect leads investors to sell winners and hold losers, a pattern he says is both common and costly.
- Scott Nations says Tesla fits the “fantastic objects” bias, where investors buy a stock partly to feel closer to Elon Musk or another iconic founder.
- He thinks AI is probably the biggest market theme for 2026, and says it may be a bubble that the market can grow into.
- Scott Nations calls inflation his number one risk for 2026 because lower rates could make assets expensive beyond fundamentals.
- He says private credit is a major concern because it is big, opaque, and could transmit stress through the financial system.
Notable quotes
“the human brain is ills suited for making wise investment decisions”
“investing is relatively new and evolution is not”
“the tendency that all investors have to sell their winners and hold their losers”
“people buy either the product or the stock because they get this sense that in doing so, they're closer to physically, emotionally, socially closer to Steve Jobs or Bill Gates”
“I think we're in a little bit of a bubble but this could be a bubble that we grow into”
How the episode opens
Today's number, 67,000. That's how many miles per hour the Earth travels around the Sun. Astronomers tried for centuries to understand the sun, including where it goes at night, but eventually it dawned on them.
Welcome to Prof Markets. Scott is still away. He will be back on Monday, but we have a great interview today.
We have been spending a lot of time this year thinking about how to invest in 2026. We've been hearing the bull case. We've heard the bear case.
Still, it is hard to know what to think. So, today we are talking to someone who spent his whole career studying this stuff. He's also written a book on how to invest in uncertain times.
He's also written another book about US market crashes. So, we're very excited to speak with him. We're going to get into it now.
This is our conversation with Scott Nations, president of Nations Indexes and author of The Anxious Investor. Scott, thank you very much for joining me on Profy Markets.
Thanks for having me.
So, a lot we want to get into here. I want to start with some concepts from your book and then I want to sort of think about how we can apply these ideas to markets and how we can think about investing in 2026. But let's just start with your book.
Uh the opening line from the anxious investor is quote the human brain is ills suited for making wise investment decisions. I love that. Why why is the human brain so bad at making investment decisions?
The simple uh explanation is that investing is relatively new and evolution is not. And so uh human beings evolved when they faced very different decisions uh versus you know what should I do with my portfolio or that sort of thing and let's face it that for a 100,000 years when humans were on the savannah uh they they had to become loss averse or risk averse two different things but they're related because the the cost of making the right decision or the benefit for making the right decision decision would be relatively small.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- investment psychology
- options trading boom
- market bubble
- inflation risk
- private credit
Watch the episode
Watch “Your Brain is the Worst Investor in the Room — ft. Scott Nations | Prof G Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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