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Learning how to invest isn’t just figuring out the difference between stocks and bonds, choosing between being a passive or active investor, deciding to hire an investment professional, going with a robo-advisor, or doing DIY investing. Investing is so much more than that. Why? Because we’re humans, not robots or computers. Emotions and behaviour dictate so much about why the stock market goes up and down and what decisions we end up making. This is why I’ve got Dr. Daniel Crosby on the show who recently authored the book The Behavioral Investor.
In this episode, we talk about the 4 behavioural risks that crush your investment returns:
- Ego – We believe we are special and succumb to confirmation bias.
- Conversativsm – We like to stick to things we know and thus tend to hold on to losing positions.
- Attention – We pay too much attention to stories put out by the media or our personal networks, and not enough to stats and simple math.
- Emotion – We tend to let our emotions control our decisions and ignore logic.
We also discuss some helpful ways to combat these behaviours:
- Ego – Diversify, don’t fall into the trap of investing too much of your portfolio into your home country.
- Conservatism – Create a rule-based system for investing and stick to it.
- Attention – Stop listening to the noise and get focused. Sometimes the simplest solution is also the best solution.
- Emotion – Meditate and stop and think. Also having a barrier such as using dollar-cost averaging, automated contributions, and working with an advisor could help so you don’t have too easy access to your money.
There are many more gems in his book so make sure to buy a copy. Also, visit jessicamoorhouse.com/contests to enter to win a copy of his book too.
- The Behavioral Investor
- The Laws of Wealth: Psychology and the Secret to Investing Success
- Personal Benchmark: Integrating Behavioral Finance and Investment Management