Investors behaving badly – An Overview

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Nick Foy, CFP®

The biggest enemy to investor success is typically…investors themselves.

In today’s WSJ, Jason Zweig wrote an excellent overview of some of the most significant biases that investors struggle to overcome. I experienced it myself after working with thousands of self-directed Vanguard clients (and they’re among the best of the bunch!). It’s a big part of the reason I decided to get into this business to begin with: Without a guide to provide accountability, many fail to recognize and avoid their own biases, and end up much poorer as a result.

An example from the article:

“Behavioral economics teaches that people are overconfident: They believe they know more than they do, or they assume their knowledge is more precise than it is.

I’m 100% certain that’s true for everybody else, but there’s no way that applies to me.

If you’re paywall blocked but you want to dig in deeper, I recommend Zweig’s excellent book: Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich

Most people who darken my office door for the first time assume I get paid to invest people’s money. That’s technically true, but investing has become increasingly commoditized over the past decade. The modern, expert advisor creates value by helping people avoid costly mistakes. Without some understanding of what those mistakes could be, and someone to help them avoid the pitfalls, people limit their own potential success.

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