In truth, Mr. Market’s emotional problems are the least part of it. What he really suffers from is behavioral biases and a propensity to make cognitive errors.
Doing what everybody else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all
Probabilities are at the heart of investing. We look at examples of our human frailties in assessing probabilities.
Risk aversion is an unwillingness to take on a risk in spite of the fact that the reward amply justifies the risk taken
If you don’t know what framing is, it’s a wonder you survived this long. We can defend against misframing when others use it against us. But, as important, we can learn to be alert to our own lack of perspective and reframe our own view of things to our advantage.
No investment decision should ever be motivated by trying to beat the market. The moment this impulse creeps in, the investor is liable to risk seeking behavior.
In our hunt for the investment guru we get hit with a double whammy of cognitive errors. We see patterns in random data because we, as humans, love to find causes and patterns suggest causes. And, we jump to conclusions on the basis of statistically insignificant data, again, because we love to identify causes.
The greatest failing of most investors, both professional money managers and individual investors, is a failure to understand the impact of their own very human behavior and that of stock market participants as a whole.
Investors always need to be alert for things that make us risk seeking. Risk seeking is bad. Risk seeking is being willing to take a risk even if the chances of success are poor. Risk seeking causes investors to lose money.
When we own a stock, let’s face it, we love to see articles and reports that confirm our positive view of our investment. It’s human nature. It makes us feel good. On the flip side, we tend not to see or notice negative opinions.