Ben
This post has ended up longer than expected. Thus, I have broken it up to two articles. Stay tuned for part two!
As humans, we are built to think in certain ways, and they are prone to errors. In the investing world, these errors can be very expensive, and being aware of these can help your bottom line.
It is my belief that investment performance is mostly determined psychologically, so here are some psychological pitfalls to be aware of.
Survivorship BiasThe most common example given is the one about World War II planes.
In WWII, too many planes were being shot down. Engineers wanted to know how to increase the chances of planes making it back, so they looked at the “survivors”. What they saw were lots of bullet holes in certain parts of the planes, so they concluded that they should put more armour on those
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