Don’t Be Your Own Worst Enemy

Don’t Be Your Own Worst Enemy

Oct 10, 2015

One of the most well-known investors of the 20th Century, Benjamin Graham, said that “the investor’s chief problem—and even his worst enemy—is likely to be himself.”

What Graham understood—and modern research is catching up to—is the idea that we all have emotions and biases that affect our decision-making. The innate wiring built to survive pre-modern times can be counterproductive in our modern world, especially when it comes to investing. (1)
Let’s take a quick look at a few of the human emotions and biases that can adversely impact sound investment decision-making.

Fear and Greed

These are the two most powerful emotions that move investors and investment markets. Each emotion clouds our capability for rational and dispassionate decision-making. They are the emotions that lead us to believe that prices may continue to rise (think the Tulip price bubble of 1636) or that everything has gone so wrong that prices may not recover (think Credit Crisis of 2008-2009).
Some investors have found a way to conquer these emotions and be brave when everyone else is fearful and resist the temptations of a too-exuberant market.

Overconfidence

Peter Bernstein, a noted economic historian, argued that the riskiest moment may be when we feel that we are right.(2) It is at that precise moment that we tend to disregard all information that may conflict with our beliefs, setting ourselves up for investment surprise.

Selective Memory

Human nature is such that we tend to recast history in the manner that emphasizes our successes and downplay our failures. As a result, we may not benefit from the valuable lessons failure can teach. Indeed, failure may be your most valuable investment.

Market history is littered with examples of “rules of thumb” that have worked, until they no longer worked.

Prediction Fallacy

Humans have an innate desire to recognize patterns and apply these patterns to predicting the future. We erroneously believe that because “A” occurred and “B” happened that if “A” happens again, we can profit by anticipating that “B” will repeat. Market history is littered with examples of “rules of thumb” that have worked, until they no longer worked.

Financial markets are complex and unpredictable. Our endeavors to tap their opportunities to pursue our financial goals are best realized when we don’t burden the enterprise by blindness to the inherent behavioral obstacles we all share.

Ken Earwood

Ken Earwood is a professional financial advisor with more than 20 years of experience serving clients in the financial service industry. CA Lic. #: OC44710. He can be reached at 16531 Bolsa Chica St. Ste. 304 HB, CA 92649.

E-mail: kenearwood@titanfinancial.net or call (714) 840-9283, ext. Securities offered through Parkland Securities, LLC. Member FINRA/SIPC.

Latest News

Isolate Pure CBD

Health & Wellness Sorbet Mag

Isolate  Pure CBD

Bringing a Different Kind of CBD Company to Consumers An exciting new CBD company has emerged, capturing marke...

Staying on Trac with Body Flex Sports

Health & Wellness Jody Robinson

Staying on Trac with  Body Flex Sports

It isn’t often that a series of decisions made over a cup of coffee end up working out for the best: or becom...

Bare Bunny Aesthetics

Health & Wellness Jody Robinson

Bare Bunny Aesthetics

Baring Your Best Self with Surf City’s Newest Wellness Spa There is much to be said for feeling divine. The ...

What to Do When You Hear the Life-Changing Words, “You Have Cancer”

Health & Wellness Wade Smith, M.D.

What to Do When You Hear the Life-Changing Words, “You Have Cancer”

As a medical oncologist, I understand the toll a cancer diagnosis takes on patients and their families and I kn...

Hide and Seek

Finance Donald A. Hunsberger

Hide and Seek

Observations on How People Store Their Planning Papers Every estate attorney has heard the story recited in he...

Why older adults should review their medications

Health & Wellness Sorbet Mag

Why older adults should review their medications

St Joseph Hoag Health is here to help You know the routine: Step 1: Get your prescription from your physician...

Away at College Redux

Education Donald A. Hunsberger

Away at College  Redux

Decades ago we published a piece warning parents sending their kids to college for the first time to provide th...

Loaded Inheritance: Safe Gun Storage, Ownership and Disposal with California Gun Services

Business Showcase Ann Laurence

Loaded Inheritance: Safe Gun Storage, Ownership and Disposal with California  Gun Services

My grandparents owned a beautiful three bedroom casita in Solana Beach. Just up the road from the train station...

Greetings from Family-Friendly Fun Island-Style

Travel Jody Robinson

Greetings from Family-Friendly Fun Island-Style

Each year in Hawaii as the winter temperatures drop to a lovely 81 degrees, the groundswell charges the shores ...

Visiting (like) Royalty in the Queen City Charlotte North Carolina

Travel Jody Robinson

Visiting (like) Royalty  in the Queen City Charlotte  North Carolina

My entire experience with North Carolina up until a few months ago consisted of a vague knowledge of the sports...

The Proof is in the Paint with

Business Showcase Jody Robinson

The Proof is in the Paint with

But unfortunately phrases like “bottom-line oriented,” “unscrupulous,” even “cutthroat” have croppe...

Travel Can Be Tough on Your Legs

Health & Wellness Livia De Los Rios

Travel Can Be Tough on Your Legs

Medical compression stockings and socks are a travel essential Many people travel long distances and have to r...

Sorbet Magazine Celebrates Its September Issue!

Business Showcase Sorbet Mag

Sorbet Magazine Celebrates  Its September Issue!

It’s impossible to say what we love most about our issue release parties, especially the most recent one at V...

The Escher String Quartet Opens Segerstrom Center’s 2018-2019 Chamber Music Series

Entertainment Sorbet Mag

The Escher  String Quartet  Opens  Segerstrom Center’s 2018-2019  Chamber Music Series

Thursday, November 1, 2018 in Samueli Theater Segerstrom Center for the Arts launches its 2018-2019 Chamber Se...

Segerstrom Center Kicks Off Its 2018-2019 Jazz Season With Jazz Master Ahmad Jamal

Entertainment Sorbet Mag

Segerstrom Center Kicks Off Its  2018-2019  Jazz Season  With Jazz Master Ahmad Jamal

Segerstrom Center for the Arts presents Grammy® Award Lifetime Achievement Award Winner Ahmad Jamal for one pe...

Beyond the Books Nadia Milner delivers "Top Notch Services"

Entertainment Jody Robinson

Beyond the Books  Nadia Milner delivers "Top Notch Services"

I remember when one of my college friends was appointed Payroll Specialist for a large company in Pasadena. Whe...

Ready for Open Enrollment?

Health & Wellness Sorbet Mag

Ready for  Open Enrollment?

In a few weeks, you’ll be making important choices about next year’s health plan. As you consider your opti...

Making Educated Choices for Your Loved One’s Care

Education Jody Robinson

Making Educated Choices for Your Loved One’s Care

A Q & A with Derek Mannion, founder of Alliance Eldercare You think it might be time to consider options f...

Lea Michele and Darren Criss Continue LM/DC Tour With North American West Coast Dates

Entertainment Sorbet Mag

Lea Michele  and  Darren Criss  Continue LM/DC Tour With North American West Coast Dates

November 2, 2018  in Segerstrom Hall Following the demand of fans and rave reviews, actors and musicians ...

Drug Free, Surgery Free & Needle Free: A New, Proven Treatment to Reverse Erectile Dysfunction

Health & Wellness Jody Robinson

Drug Free, Surgery Free & Needle Free:  A New, Proven Treatment to Reverse Erectile Dysfunction

A Q & A with Dr. Michael DeYoung, M.D., LaSara Medical Group Men with erectile dysfunction (ED) often suff...