Why it's so tough to be a decent investor
How investors go about making decisions when the going gets rough can have long-lasting implications, especially with bias and emotion working overtime.
The field of behavioural finance has shown that most of us can’t be counted on to take the most logical, rational route when it comes to money.
We’re overconfident and short-sighted. We tend to overreact to information, sell too soon and hold on to losers too long. The list goes on and on.
Don't have time to really read up on the topic? Here's a good summary from Robert W. Baird & Co.’s Private Wealth Management that outlines a collection of psychological and social factors that affect how we make financial decisions.
Visual learner? Have a look at these very simple sketches, courtesy of Behaviour Gap. No one does this sort of snapshot better than Carl Richards, a Utah planner who's famous for his Sharpie drawings (like the one above).
They illustrate what he’s coined as "the behaviour gap" — the chasm between what we should do with our money and what we actually do, thanks to our emotions.
By Gordon Powers, MSN Money