Please click the play arrow above to watch this 45-minute on-demand webinar recording.
Our advisor, Gina Buchholz, presents “My Brain Made Me Do It: Strategies for Better Investment Decisions.”
This presentation provides an opportunity to:
Investigate how we typically make decisions
Understand how our decision-making process contributes to common investment mistakes
Learn how to train our brains to avoid those mistakes
Additionally, you’ll learn about these six common investing mistakes:
Loss aversion
This is an emotional bias
Some financial decisions that are driven by loss aversion include reluctance to sell losing investments, selling winning investments too early, excessive risk aversion, and inaction bias
Consider Dollar Cost Averaging
Anchoring
This is a cognitive bias
Anchoring is how well you can concentrate and focus
Some financial actors include the Great Depression in the 1930s, the market crash in the 1970s, significant inflation in the 1980s, the Dot-Com Bubble Burst, the Great Recession of 2008, and the Covid-19 Pandemic Downturn
You can change your anchors by reviewing the S&P 500 Index data
Status quo bias
This is a cognitive bias
People tend not to change an established behavior unless the incentive to change is compelling
Consider asset allocation and rebalancing
Procrastination
This is an emotional bias
Ways to remedy procrastination include making a schedule, revisiting your plan at regular intervals, involving others and holding yourself accountable, learning what motivates you, rewarding yourself for progress toward your goals
Hindsight bias
This is an emotional bias
Hindsight is like locking the barn door after the horse has run away aka taking action after it is too late
It is natural to feel emotional about your investments. Common feelings include feeling confident, euphoric, desperate, nervous, defeated, and hopeful
Emotions tend to make investors abandon and reenter stocks at the worst times
It is important to understand time, diversification, and the volatility of returns
Ways to remedy hindsight bias include remembering that you did the best you could with the information you had, reviewing your plan to make sure it still works for you, keeping a long-term perspective, and writing a letter to yourself
Availability
This is a cognitive bias
Think of this as people’s tendency to use the information that’s on hand to make decisions
Ways to remedy this include not believing everything that you hear, remembering that bad news sells newspapers and media in general, experts (and your neighbors and friends) can be wrong, systematic investing works in up and down markets