Bad habits sow bad investments. Avoid traps created by overconfidence, herding, anchoring and regret
This is mostly a refresher course for students of decision making and investors-but worth reading.
Introduction (Via Globe & Mail)
Recently, a money manager I was talking to said his investing motto comes from the words of Polish composer Frédéric Chopin: “Simplicity is the final achievement. After one has played a vast quantity of notes and more notes, it is simplicity that emerges as the crowning achievement.”
It’s easy to make investing complicated. By contrast, Warren Buffett has said that all it takes to invest successfully is having a sound plan and sticking to it – and that it’s the “sticking to it” part that investors struggle with the most.
To understand why this is, more and more economists and finance professors are studying the field of “behavioural finance,” analyzing the patterns of things people do that end up costing investors money.
Excerpts (Via Globe & Mail)
Research by Terrance Odean and Brad Barber of the University of California shows there is a natural tendency to overestimate investment knowledge as well, particularly among men.
Their conclusion: “Excessive trading is dangerous to your wealth.”
It can be equally difficult to hang in during markets such as we’ve seen of late. “The buy part is easy,” Ms. Kramer says. “It’s the hold part in tough markets that’s the challenge.”