Introduction to the ABCs of Behavioral Biases
July 19, 2024
Legendary economist Benjamin Graham once stated that ‘your own behavioral biases are often the greatest threat to your financial well-being.’
Legendary economist Benjamin Graham once stated that ‘your own behavioral biases are often the greatest threat to your financial well-being.’
Four self-inflicted biases that knock a number of investors off-course are anchoring, blind spot, confirmation and familiarity bias.
In the latest installment of our Behavorial Biases Series, let’s tackle fear, FOMO (greed), framing and herd mentality.
In the latest installment of our Behavorial Biases Series, let’s look at hindsight, loss aversion, mental accounting and outcome bias.
In this installment of our Behavorial Biases Series, let’s look at overconfidence, pattern recognition and recency.
In the final alphabetical installment of our Behavorial Biases Series, let’s dive into sunk cost fallacy and tracking error regret.
During this series, we have learned that our own behavioral biases are often the greatest threat to our financial well-being.
It helps to know what you are facing in investing. Play with and not against market forces by understanding how market pricing occurs.
What causes market pricing to change? It begins with the constant stream of news informing us of the good, bad and ugly events taking place.
Independently thinking groups (like capital markets) are usually better at accurate answers than even the smartest individuals in the group.
The market’s price-setting efficiencies start with diversification being among your greatest financial friends.
To understand, avoid and manage investment risks, there are two main types in avoidable concentrated risks and unavoidable investment risks.
Diversifying is not perfectly predictable, but it offers a blanket of coverage for capturing random market returns where and when they occur.
Investing requires an understanding of how to build a diversified portfolio to more effectively capture long-term global market returns.
It is easier to stick with your investment selections if you use a rational methodology such as evidence-based investing.
Grounding your investment strategy in rational methodology strengthens your ability to stay on course toward your financial goals.
Continued research has helped us identify additional market factors at play, with additional potential premiums.
Arguably, the most significant factor in your evidence-based investment strategy is the human factor.
In the final installment of our Evidence-Based Investment Insights Series, let’s review the key take-home messages from each installment.
The more wealth you accumulate, the more chaotic your assets and accounts can become. That is why being financially organized is paramount.
In the second installment of our ‘Bringing Order to Your Investment Universe’ Series, let’s talk about transitions and taxes.
In the final installment of our ‘Bringing Order to Your Investment Universe’ Series, let’s talk about optimizing your organized investments.
Recency bias leads us to believe that this summer has been overloaded with more major events than in previous years.
Before you can invest, you obviously have to save. But knowing this is true does not always make it easy to do.
As part of our Investment Basics Series, we are looking at where stock market returns really come from and why that matters.
Stock pricing can be both remarkably efficient in aggregate, as well as wildly unpredictable from one moment to the next.
Once you have structured your investments to capture available, risk-adjusted market returns, you will need to stay on track as planned.