Power of Insight
The Power of Insight
Are your biases impacting your investment decisions?
As humans, we often times take what has happened in the recent past and project it indefinitely into the future. In fact, it is estimated that 40% of our daily activities are not conscious decisions, but rather, habits. Our personal experiences often influence our behavior and impact the decisions that we make without us knowing it. As investors, we often form biases and establish investment habits based on past experiences. The better we recognize our personal biases, the more consistent we can be in our financial decision-making.
Common investor biases and valuable perspective:
Recency bias
The tendency to draw conclusions about the future behavior of an investment based solely on recent results.
Insight
The greatest returns are often delayed. Like compound interest, habits compound over time.
Overconfidence
The belief that we make decisions that are always in our best interest and usually correct.
Insight
If you have good habits, time is your ally. Conversely, if you have bad habits, time is your enemy.
Regret Inversion
The tendency to be risk adverse or take greater risks due to the fear of potential regret.
Insight
The “cost” of your bad habits is in the future; the “cost” of your good habits is in the present.