When our own brains sabotage our investment decisions

Advisors


It’s happened to the best of us, no matter what our education. You are at a dinner party or having a conversation in the kitchen at work when you hear someone say, “I just made 100 percent profit buying ABC stock, and this thing is just taking off.” Irrespective of our intellectual quotient, when we hear of opportunities to make money quickly, it always peaks our interest. After you hear this tip from a person whom you trust and like, you already become biased that this is, of course, a very good idea.

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What happens in the ensuing number of days is that you begin to look for evidence that this hot stock is a good idea for your portfolio. When you do your Google search, you inherently look for the article that makes you believe this will be the next big stock. For example, if you chart the stock on Google Finance, you might see a link on the right-hand side that says, “Why ABC stock will be the next Amazon.”

After you convince yourself that this is a good idea, without having anyone else debate the merits about it not being good, you then go ahead and make a trade in your account and buy this hot stock.



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