Author: Taking Care Of My Own Business

100 Biases and Bias Bias

einhundert – 100 – one hundred The other day I have shared with you this gigantic Cognitive Bias Codex.  It contains 189 different biases.  So far I have written about 100 biases that make you do dumb things with your money.  So, bear with me.  I am merely half way there in gathering awareness about those hidden flaws in my own thinking. Anyhow, this 100-milestone justifies – in my biased eyes – a revisit of my personal Top Bias: Bias Bias is the stubborn belief that we are less biased than we really are. Everyone is prone to cognitive...

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Familiarity Bias vs. Ambiguity Effect

Or otherwise known as reliance on old-fashioned financial institutions and outdated economic structures.  Partly, it is due to habit; partly, because of our concerns about liquidity; and partly, because we think that it is always risky to experiment with new things where we might lack information (“ambiguity”). We seem to want to persist in using the tried financial technology that was used by our grandparents—Savings & Fixed Deposits—even though there may be memories of major economic dislocations in your grandparents’ times. Strangely, we are very happy to adopt the newest smart phones, the latest kind of computers or automotive technology.  We do see rapid...

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Fading Affect Bias

Among the many quirks our brains have is something called the “fading affect bias.”  Basically, we aren’t very good at remembering negative emotions.  Our brains shrink the memories of bad times, painful experiences and anything generally unpleasant. That is generally a good thing. But could it be that we carry this bias into our portfolios as well. That is generally a dangerous thing. Two main ways this bias can lead us astray ONE: The fading affect bias (and its cousin, optimism bias) promotes speculation. Imagine you speculate on a high-flying small cap green-tech stock and it gets obliterated.  If you...

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Cognitive-Biases-Life-Hack

Emotions are the main cause and driving force in the stock markets. Last week I shared some thoughts why understanding our mind as a tool that tries to live in an uncertain world is an important challenge. Because the brain hums away invisibly in the background, we tend to overlook its contribution and take it for granted.  Misunderstanding the working of our own mind does not, thankfully, prevent the mind from doing its work.  Making errors about the inside of our head doesn’t change what’s there. And that mind of ours tricks us all of the time. We are...

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Are you investing/trading like a scientist or like a lawyer?

Before you read on, take a minute and think about this question for a while. Look back at your recent transactions. How did you arrive at those decisions? Are you happy with your past decisions? Any regrets? C’mon.  If you’ve never yelled “How could I have been such an idiot?” at yourself in a fury, you are not an investor and certainly not a trader. Now back to my headline question: My take is, you would like to belief that you invest like a scientist. Purely interested in objective facts drawing logical conclusions from them.  You might even have...

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A trip to Lake Wobegone

This trip is for the stock traders among you. What kind of annual return are you aiming for? 30% or 20% or 10%? What’s your number? Humans, and especially those of the male persuasion, have a bias called The Lake Wobegone Effect.  They have the tendency to overestimate one’s own abilities resulting in unrealistic expectations.  It is named after the fictional town created by Garrison Keillor, where “all the women are strong, all the men are good looking, and all the children are above average.” That combination of overconfidence and misplaced expectations are a killer in the markets. Consequently,...

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Without this you will never achieve Financial Freedom

Enoughism* You have to find, define and fix your personal level of ENOUGH.  Where you possess everything you need, and buying more would actually make you worse off. In my most recent post I have brought up the crucial question: “How much do I need to lead a life that is meaningful, purposeful, and joyful?” Once you have answered that question for yourself, documented it and then never change those goal posts in the future, you have set your sights on achieving Financial Freedom.  This implies if you can’t answer that question for yourself you will never ever achieve...

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Not-Invented-Here-Bias

Last week I wrote about expensive Mutual Funds / Unit Trusts and their cheaper (and better) alternatives called Exchange Traded Funds (ETFs). You still don’t buy it. Ok, that might be my fault because I am simply not convincing enough that passive, systematic, repeatable investment strategies are the best option for the majority of investors. Or, maybe you could be suffering from the “Not-Invented-Here-Bias”: Someone tells you that a Regular Savings Plan in a few broad based and diversified INDEX Funds (not one of those underperforming overcharging Mutual Funds or Unit Trusts, but an ETF) is a sure thing in...

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The stuff that could make all the difference in your Mutual Funds

Fees and Expenses. Investors in mutual funds incur two primary kinds of expenses and fees: Fund expenses and loads.  Whereas fund expenses are paid indirectly from fund assets throughout the year, sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed. Take a deep breath and let’s go for a deep-dive into those expenses Fund expenses cover operating expenses and fees, whereas sales loads are one-time charges and may either be front or back end sales charges. The US Securities and Exchange Commission (SEC) summarizes the regular fund operating expenses by enlisting these fees into the category: Investment Advisory...

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Can you afford to ignore the long-term importance of money?

“Oh, money,  I’m actually not interested in money.”  So many people say that. Yet they’ll work at a job for eight hours or more (that they don’t even like) just to be able to buy stuff to impress their neighbours, the Tans and Lees (who they don’t really like either), who might be buried in debt—from trying so hard to impress them. Many of you hate financial education.  You think it’s confusing.  You don’t want anything to do with it.  Nevertheless, you love money (when you have it).  Still, you see no irony in this. The way out of the rat race: Do learn as much as possible about how money works, so that you do not have to spend your entire...

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Normalcy Bias and a bit of Impact Bias

Yaaawwnn.  The stock markets in the last few weeks have been rather boring and uneventful.  The US-market (measured by the S&P 500) has even entered an unusually long period of volatility contraction.  The daily market moves up a bit and then down a bit.  All in minuscule steps.  We recently have gone through the least volatile period in almost 23 years. This market action can lull one to sleep. But don’t let your guard down. It is a good time to revisit two of our psychological quirks we are saddled with as part of our evolutionary baggage. The Normalcy Bias...

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Are you in control?

The desire to feel like we’re in control seems to be a very basic human need. Are you in control?  Do you like to control your environment? Well?  Were you successful in that endeavour?  C’mon, be honest. Because—Control—is an illusion! Let me give you an example from Singapore: You choose a durian from a street vendor which tastes delicious, so you assume that you are very skilled at selecting durian (when in fact, the whole batch just happens to be good). Here’s another example: You play the lottery and win millions.  Therefore, you assume that this is (partly) the result of how good your— lucky—numbers are, even though lotteries are totally random and cannot...

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To stay stress free, take care of your own business and not other’s business

The other day some friends asked me what Tacomob actually means and stands for.  As this is a FAQ I often encounter, let me share my thoughts here: In one sentence, I prefer to Tacomob instead of mentally doing other’s business. What do I mean with “other’s business”? Example thoughts of being in “other’s business”: You need to get a job. I want you to be happy. You should be on time. My wife should love me more. You need to take better care of yourself. Julie did not smile at me. My children do not care enough for me....

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Zero-Risk Bias

My brain is flawed.  It is a flawed lens through which I see reality.  This is true of both mouse brains and human brains.  But a human brain is a flawed lens that can understand its own flaws—its systematic errors, its biases—and apply second-order corrections to them.  This, in practice, makes the lens far more powerful.  Not perfect, but far more powerful. Take our zero-risk bias for example.  This is our preference for reducing a small risk to zero over a greater reduction in a larger risk. It plays to our desire to have complete control over a single,...

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Stuff I read last week – One

Reading is not too bad an investment of time.   In a short period of time I get to absorb what took someone else years to accumulate, understand, distill, and refine.  There could be so much to learn from what I read.  If I just could remember everything I read. To increase my rate of recall I do talk myself into typing out the core concepts.  This should help.  Albeit only a bit. Because taking notes with a pen and paper, rather than a laptop, leads to higher quality learning, as writing is a better strategy to store and internalize ideas...

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