Saturday, November 13, 2010

Behavioral Investment Tips

Top tips for better decision making

This applies to me, you and everyone else.

You know less than you think you do.

Be less certain in your views, aim for timid forecast and bold choices.

Don’t get hung up on one technique tool, approach or view – flexibility and pragmatism are the order of the day.

Listen to those who don’t agree with you.

Top tips for better decisions

You didn’t know it all along, you just think you did. Forget relative valuation, forget market prices, work out what the stock is worth (use reverse DCFs).

Don’t take information at face value, think carefully about how it was presented to you.

Don’t confuse good firms with good investments, or good earnings growth with good returns.

Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated.

Try to focus on facts, not stories.

Sell your losers and ride your winners.

Beating the biases

Being aware of the biases is not enough. It is just an important first step.

Need to create a framework that incorporates mental best practice. Easier said than done. Mental bad habits are persistent.

The good news, we continue to create new brain cells throughout our lives.

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