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Glancing at the charts for the Dow and S&P/TSX, we offer two observations.

1. Stocks have made a remarkable recovery from the subprime meltdown in August.

2. If you'd sold in a panic during the crisis, boy would you regret it now.

We know. It can be hard to resist the temptation to sell when stocks are tumbling all around you. But don't blame yourself; blame your brain.

We were reminded of the market's recent yo-yo routine as we read an excerpt from Jason Zweig's timely new book, Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.

Don't let the neuroeconomics part scare you. The main thrust of Mr. Zweig's book is that, as investors, we are slaves to the ancient parts of our brains that were designed to maximize survival. Millions of years ago, if we were threatened by a predator, our brains told us to run like hell. If we were hungry or thirsty, our brains told us to eat or drink.

What does this have to do with investing? Plenty.

According to Mr. Zweig, a senior writer for Money magazine, when an investor is watching his portfolio plunge in value, it's as if all the red minus signs on his computer screen are a pack of hungry lions trying to eat him for dinner. That's because the losses stimulate the same part of the brain - the amygdala - that responds to mortal danger.

As the amygdala pumps his body full of stress hormones, the investor's pulse and blood pressure rise, his muscles tense and his breathing quickens. Even though he's not in any physical danger, his body acts as if he is. If you've ever had the pleasure of watching one of your stocks go splat, you know the feeling.

So what does the investor do? He sells, which is the investing equivalent of running for the safety of the nearest cave. It may make him feel better temporarily, but from an investing standpoint, it's the worst thing he could do, because he locks in a loss and misses out on future gains.

Our brains also trick us into making mistakes when stocks are rising.

"The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine," Mr. Zweig writes.

Moreover, when a particular stimulus is repeated - a stock price that ticks higher a couple of times, for example - "the human brain automatically, unconsciously and uncontrollably expects a third repetition."

Result: Investors buy stocks after they've already climbed in price, instead of buying them when they're selling at bargain levels. Remember all those investors who piled into tech stocks in 1999 and 2000?

Mr. Zweig, who had his own brain scanned repeatedly as part of the research for his book, says the trick to successful investing isn't turning off your emotions, but "turning them inside out."

To understand what he means by that, he recommends investors keep a journal of their feelings about the market. One or two sentences a day is all that's required.

Imagine if you'd kept a journal last summer. An entry in July, when stocks were soaring, might have read, "I'm feeling good because my stocks are going up." An entry in August, when all hell was breaking loose, might have gone something like, "I'm scared because my stocks keep going down."

Now, read those statements again and look at the charts for the Dow and the S&P/TSX. It turns out that the time to be skeptical was when the ancient parts of your brain were telling you to be optimistic, and the time to be optimistic was when your brain was telling you to be scared. Learning to bet against your own emotions is one of the secrets to making money on stocks.

"What this book is really all about is becoming more mindful, just becoming more self aware," Mr. Zweig said in an interview. "If you make a financial decision in the grip of hot emotion, you are likely to regret it later."

With the S&P/TSX having risen 1,281 points or 10 per cent from its summer lows, investors whose brains were flashing "sell" signals last August know what he's talking about.

jheinzl@globeandmail.com