Loss Aversion
Expecting to find high returns with low risk
Narrow Framing
Making decisions without considering all implications
Mental Accounting
Taking undue risk in one area and avoiding rational risk in another
Diversification
Seeking to reduce risk, but simply using different sources
Anchoring
Relating to the familiar experiences, even when inappropriate
Optimism
Belief that good things happen to me and bad things happen to others
Media Response
Tendency to react to news without reasonable examination
Regret
Treating errors of commission more seriously than errors of omission
Herding
Copying the behavior of others even in the face of unfavorable outcomes
Be Patient and Think Long-Term
“The stock market is a device to transfer money from the ‘impatient’ to the ‘patient’.”
- Warren Buffett,
Chairman, Berkshire Hathaway
Keep Your Emotions in Check
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw irrational emotion under control.”
- Charlie Munger,
Vice-Chairman, Berkshire Hathaway
Disregard Short-Term Forecasts
“The function of economic forecasting is to make astrology look respectable.”
- John Kenneth Galbraith,
Economist and Author
Make a Habit of Investing Regularly
“Systematic investing will pay off ultimately, provided that it is adhered to conscientiously and courageously under all market conditions.”
- Ben Graham,
Father of Value Investing
Don't Try to Time the Market
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”
- Peter Lynch,
Legendary Investor and Author
The Power of Equities
“History has shown that equities are the best way to build long-term wealth.”
- Shelby M.C. Davis,
Legendary Investor
Markets Fluctuate. Stay the Course.
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
- Ben Graham,
Father of Value Investing
A Market Correction is an Opportunity
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.”
- Warren Buffett,
Chairman, Berkshire Hathaway
Equities Have Built Wealth Despite Crises
“History provides crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.”
- Shelby M.C. Davis,
Legendary Investor
The definitive behavioral investing book: Unpack Your Financial Baggage: How to Battle the Misconceptions of Retirement Planning
Tens of millions of people are stampeding into retirement on their last major financial run expecting a retirement lifestyle of independence and dignity. Unfortunately, they are following a leader off a financial cliff, due to the traditions and habits that have led to a misunderstanding of long-term planning—not to mention the prehistoric cognitive bias that is tugging at their behavior.
