Skip to main content

Are you Biased - 2

This is in continuation of series on biases. Here’s the link for  you to quickly go through previous post.

Before we discuss another set of biases again what does being biased mean?

 

Strong inclination towards or against some idea without reasonable basis for the same.  Write down your answer to WHY and you might catch yourself being biased more often than not.

·        Over Influence by Liking Tendency: Remember when you bought a product just because your favorite star advertised it? I remember purchasing Too Yum (Indian snack brand) because Virat Kohli endorsed it.

Marketing companies use this trick almost always to sign up superstars to increase sales of their clients. We get lured into buying irrespective of whether we need the product or not.

It is no different in the stock markets. Retail investors often buy because a well-known successful investor bought a stock without knowing about the business prospects or having conviction about the company.

The often quoted sentence is “Mr. X (a successful investor who made millions from investing in stocks) has bought it so he might obviously have thought something and bought it let me also buy it”

 

·        Bias from Envy or Jealousy: Two of the most dangerous emotions human being has envy and jealousy. More money has been lost in trying to earn more than your neighbor by getting into quick rich schemes which is plain stupidity.

How can someone earn more than me by investing in stocks? I don’t know about getting rich but this thinking is a sure shot way to destroy your wealth.

In context of life if your decisions are based on jealousy, you’re almost guaranteed to never be happy no matter how much money you make.

 

 


It’s clear from the above image that no matter how great you think you’re, most likely there is someone better than you. If the metric you use to decide how much you want is based on how much someone else has, you’re sowing seeds for destruction and unhappiness.

·        Emotional Arousal Bias: Emotions are double-edged sword just like leverage magnifying results at both ends high and low. They would flood your brain with so many thoughts and cloud your judgment.

Overload your brain with imagination led by emotions and reduce its capacity to make good judgments.

Seeing heavy losses in your investment portfolio or having a bad day in  life also makes us make stupid decisions with our money.

Beige shopping, eating, and spending to make ourselves feel better sure will help for time being but won’t solve the problem.

Being a highly emotional person that I am, errors in decision making when clouded by emotions was a routine. I have been saved by my mom while being emotionally driven to take a decision which in a rational state of mind I wouldn’t.

One thing which has helped me is being aware and accepting that I have let emotions get the best of me in the past. I usually think more before taking important decisions, write things down in a journal, talk to people whom I trust, and then take decisions.

Sure, this lengthens the process but it helps to avoid being driven solely by emotions.


Further Reads:

Seeking Wisdom from Darwin to Munger

https://investingreel.blogspot.com/2020/07/are-you-biased.html

 

Labels:

Comments

Post a Comment

Popular posts from this blog

Back to Basics

  A few basic ideas which I wish to reiterate to myself as they contain wisdom to think and become better. Embracing lifelong learning : If there’s one thing that should not stop no matter what situation you’re in, it is learning. Could be through reading books, watching videos, etc. The day we stop learning we almost stop growing. Reading opens up your brain, gives you a larger repository of knowledge to take information from, and a better reference point to think about. Time with Self : You’re going to spend the most time in this world with yourself, in your mind. You have to make sure it is a good place to be otherwise you won’t be happy. Things happen so effortlessly when you’re happy that nothing feels like a task. The way to improve your time with yourself is through reflecting on your thoughts as they eventually turn into actions and habits. Needless to say, it will help you know thyself better. Routine : One of the most important traits of any successful human being on eart...
Post a Comment
Read more

Pattern Seeking Brain

  “I gained because I knew this” “I had told you so” “I told you, stock X is going to double” “I knew this is going to happen, had predicted it long back correctly” What is one common thing you can sense in all the above remarks? The need to control, which stems from the need to predict and to create a narrative. Our brain is wired in a way that it needs to seek patterns in past events, analyze new information or events, and categorize them in accordance with past events. A narrative creating machine that we are, we find a correlation between the most random events which have the remotest possibility of being correlated. Let me explain, say you bought shares of Tesla. Is it suppose to obey you and rise in price because you bought it? The stock has no clue and is not even interested in knowing who bought it. Hell, it should ideally not even move just because Elon Musk tweets something. But it has moved in recent times whenever he has tweeted. Now there are two pos...
Post a Comment
Read more