WWII 017: 10 Biases Bad for Investing, Bond Risk vs Yield, Preferred vs Common Stock, Shrinking Homes, Jeremy Grantham, Natural Resource Stocks
In this episode I review and discuss 10 biases that investors have that can get in the way of successful investing. Here are the biases that I cover:
1. Illusion of Control: This cognitive bias makes us think we can control events, when we really can’t.
2. The Bandwagon Effect: We do things because everyone else seems to be doing it, even when there are no good reasons for doing so.
3. Recency Bias: Our brains simply put more weight on recent experience.
4. Anchoring Bias: The anchor here is the first piece of information offered. This cognitive bias refers to giving too much weight to the anchor when we make our decisions.
5. Loss Aversion: We don’t want to be losers. We would rather win less than to lose.
6. Attribution Bias, also known in psychology as the fundamental attribution error. When things go well, it is because of me. When things go south, it is definitely not me.
7. Hindsight Bias: Yes, I know it all along (but you didn't)
8. Confirmation Bias: We do not like people or information that contradicts our thoughts. We like them when they confirm what we think. Hence, we tend to place more weight on information that confirms our position.
9. Post-Purchase Rationalization:After buying something, we tend to rationalize and prove that our purchase is right.
10. Bias Blindspot: You see that other people are biased, but do not realize your own cognitive biases.
In the world of money and investing, you must learn to control your emotions."
Rich Dad Poor Dad
I'm not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making - just the facts."
Pershing Square Capital
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