WWII 017: 10 Biases Bad for Investing, Bond Risk vs Yield, Preferred vs Common Stock, Shrinking Homes, Jeremy Grantham, Natural Resource Stocks

Main Topic:

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."

Robert Kiyosaki
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."

Bill Ackman
Pershing Square Capital

Ask JB:


It seems that a company could issue many bonds and I am a bit confused on how to compare bond yield and risk.

For example 1: GSK IBCID51289022 (http://imgur.com/a/BG0IO) is priced at 145.9 with 3.37% yield

Example 2: GSK IBCID134743541 (http://imgur.com/a/6oYKh) is priced at 104.38 with 2.02% yield

Does it make example 1 a better deal due to the higher yield? Any other points I missed here? eg: risks of these two bonds? Or the remaining life value? Why they matter?

Somedayyes: is preferred stock more like a bond or more like a common stock?

Do you have a burning question on investing you would like answered? Click the button below to send it to me and I will answer it on the podcast!



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Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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