Keep your decisions rational
You need means by which you keep your decisions rational lest you allow your emotions and unconscious
determine what you invest in. In markets, rational thought tends to take money from emotional investors.
The controlling your unconscious mind is called discipline. Use your conscious mind to define a strategy
which is backed by statistics. Then implement decisions in a clear and consistent way. This will allow you
to make successful investment decisions.
Uncalibrated inputs like heuristics, beliefs and biases can impact investment decisions, shifting managers
off their disciplined path. Knowing when your decisions truly reflect disciplined investing verses more
behaviorally motivated processes is difficult to distinguish. In fact, it is simply impossible to assess when or
how often decisions reflect behaviorally spurred judgments, using only self reflection as your guide.
Example: How to you determine whether the chart below is signaling a buy or sell? If you say sell and I say
buy, are our conclusions rational or emotional?
To determine this, ask yourself if you follow up on your past decisions and notice which ones were
successful and why.
Studies have shown that investors prefer to:
1. Repurchase stocks they previously sold for a gain rather than stocks they previously sold for a loss
2. Repurchase stocks that have lost value subsequent to a prior sale, rather than stocks that have gained
value subsequent to a prior sale
3. Purchase additional shares of stocks that have lost value since being purchased, rather than additional
shares of stocks that have gained value since being purchased.
You may have noticed that more successful investors are willing to buy more of a stock which has risen in
value. You may find that your unconscious mind sends up messages telling you not to do that.
Mind Games: What neuroeconomics tells us about money and the brain, by John Cassidy
http://www.newyorker.com/archive/2006/09/18/060918fa_fact
Lessons From The Brain-Damaged Investor
http://online.wsj.com/article/SB112190164023291519.html
People with certain kinds of brain damage may make better investment decisions. That is the conclusion of
a new study offering some compelling evidence that mixing emotion with investing can lead to bad
outcomes.
The Testosterone Factor in Mutual Funds
In short, the researchers found no justification for investors to prefer mutual funds managed by men. In fact,
when building portfolios, investors may find that funds managed by women are better.
Once Burned, Twice Shy: How Naïve Learning and Counterfactuals Affect the Repurchase of Stocks
Previously Sold
Next
You need means by which you keep your decisions rational lest you allow your emotions and unconscious
determine what you invest in. In markets, rational thought tends to take money from emotional investors.
The controlling your unconscious mind is called discipline. Use your conscious mind to define a strategy
which is backed by statistics. Then implement decisions in a clear and consistent way. This will allow you
to make successful investment decisions.
Uncalibrated inputs like heuristics, beliefs and biases can impact investment decisions, shifting managers
off their disciplined path. Knowing when your decisions truly reflect disciplined investing verses more
behaviorally motivated processes is difficult to distinguish. In fact, it is simply impossible to assess when or
how often decisions reflect behaviorally spurred judgments, using only self reflection as your guide.
Example: How to you determine whether the chart below is signaling a buy or sell? If you say sell and I say
buy, are our conclusions rational or emotional?
To determine this, ask yourself if you follow up on your past decisions and notice which ones were
successful and why.
Studies have shown that investors prefer to:
1. Repurchase stocks they previously sold for a gain rather than stocks they previously sold for a loss
2. Repurchase stocks that have lost value subsequent to a prior sale, rather than stocks that have gained
value subsequent to a prior sale
3. Purchase additional shares of stocks that have lost value since being purchased, rather than additional
shares of stocks that have gained value since being purchased.
You may have noticed that more successful investors are willing to buy more of a stock which has risen in
value. You may find that your unconscious mind sends up messages telling you not to do that.
Mind Games: What neuroeconomics tells us about money and the brain, by John Cassidy
http://www.newyorker.com/archive/2006/09/18/060918fa_fact
Lessons From The Brain-Damaged Investor
http://online.wsj.com/article/SB112190164023291519.html
People with certain kinds of brain damage may make better investment decisions. That is the conclusion of
a new study offering some compelling evidence that mixing emotion with investing can lead to bad
outcomes.
The Testosterone Factor in Mutual Funds
In short, the researchers found no justification for investors to prefer mutual funds managed by men. In fact,
when building portfolios, investors may find that funds managed by women are better.
Once Burned, Twice Shy: How Naïve Learning and Counterfactuals Affect the Repurchase of Stocks
Previously Sold
Next
 | |  | |  | |  |
