The growing was not enough complexity of financial markets , severity of the crisis to make the life of homo economicus difficult. Complicating our lives is the discovery that one of the main enemies of good investment decisions is precisely what we thought was our best ally: the our brain. As it emerged in the course of evolution, our brain is similar to the last operating system that was released too hastily, afflicted as it is by the same problems that characterize every new technology: it has a lot of design flaws it's a buggy software (for example, the same dopaminergic circuits that make us learn from experience can lead us to ruin by making us compulsively pull the lever of a slot machine, you see "How we decide” by Jonah Lehrer).
What to do? How to defend ourselves from our "innate bugs"? First of all, precisely, noting that rational are not born, if anything, one becomes. So learning to recognize the most common "mental traps” into which we fall: a real preventive therapy to make better investment decisions. Contrary to common thought, the effectiveness of a smattering of the influence of the most common cognitive errors on the security of our savings is far greater than choosing ETFs, shares, funds or bonds as the ideal tools for our investment portfolio.
"Know yourself” said Socrates, self-knowledge is an excellent starting point for understanding the financial markets and for becoming freer and therefore more unlikely to fall victim to the scams and misunderstandings that often afflict savers.
Here are ten practical and affordable tips for any investor to avoid the most common pitfalls:
Do not postpone your decisions – Investing your savings is also an emotionally demanding process. We are often lazy and never find the right moment to do it. Taking time is not the right solution. Even "not deciding" what our goals are in terms of performance is a decision that has precise consequences. For the more serious cases of those who continually put off taking care of their investments, there is a 2.0 version of the Ulysses tree: stickk.com. You set yourself a goal and agree to pay out of pocket (to charity) if you don't achieve it. If it does not work. at least you will have done some good.
Be regressive – Not in the sense that you have to regress to your childhood and behaved childishly; but in the sense of avoiding focusing on extreme values of financial trends in forming your expectations. Don't expect a stock that has delivered outrageous returns to do so every year (unless it's apples and tech!!!). This becomes simple for everyone if we think that there is no point in expecting a father who is two meters tall to have a son who is taller than him. In both cases what is more reasonable to do is precisely a "regression to mean values". There are still many titles to be “discovered” in the markets!
Don't invest everything in the stocks of the companies on your doorstep – The company shares that we know are not necessarily the safest, as the Emilians who have subscribed to i Parmalat securities. Their supposed safety is fruit of an illusion so we believe that what we know well is even less uncertain. Our mind focuses on this aspect leaving out others that we should take into consideration to remove the sense of unease associated with risk. In reality, doing so increases the risk. The only way to reduce it is the diversification.
NDo not think that the future is the same as the recent past – With a meteorological example: if it was sunny in the last week, it doesn't mean that tomorrow you won't need an umbrella. Our mind is constantly looking for relevant links that explain the causality of events: it finds them everywhere even in events entirely governed by chance. Do you know horoscopes? Our brain invents trends and relationships where these don't exist. It systematically infers too much even with too little data. This happens again for ease the anguish of uncertainty; but as such the benefit will last the time of an illusion.
Don't invest like monkeys - Without detracting from the friendly primates, some experiments have shown that monkeys trained to use money are just as averse to losses as us humans. That is, even the monkeys to compensate for the pain inflicted by a loss of 10 euros need to win at least a little more than double. L'loss aversion it is an innate characteristic and ingrained in our brains since the dawn of evolution. In some respects we operate on world markets like our distant ancestors on the savannah. One can even think in the light of the most recent news events, that we were doing much better than them. Loss aversion implies a pure attitudeself-harm in portfolio management: we see gaining stocks too soon to ensure a certain profit (shares sold within a year on average exceed those held in the portfolio by 3,4%) and we keep loss-making stocks for too long in the hope of recovering. I would suggest, even if it feels "unnatural", to try to do the exact opposite.
Do not invest like sheep either – The instinct that drives us to follow the herd can be just as pernicious as that of infectious epidemics transmitted by contagion. If ideas and behaviors are transmitted in a very rapid and capillary way through the web and social networks, contamination is no less rapid than in the case of viruses. The more we are unaware of it, we find ourselves in a cohesive group and at the mercy of strong emotions, the more pervasive the effect will be. Among other things, there are very few rich sheep around.
Don't delude yourself into controlling events – The unpredictable happens. And as recent events have taught us, quite often too. As surveys of a large number of experts in various fields show, financial analysts often elaborate the more fallacious predictions are the more confident of their abilities. The arrogant confidence of analysts and experts is a guarantee of their self-worth, not your wallet. No one is infallible when it comes to taming risk. Better to know first.
You are not always “on point"- Once you set a time horizon for your investment, chasing every piece of news and every price fluctuation, spasmodically monitoring its progress won't make it go better, just as a cake won't cook sooner if you watch it. This attitude is harmful. Just why losses hurt more than gains make us happy, you may become less and less inclined to stay invested and deprive yourself of a significant portion of your long-term returns. Research shows that higher portfolio turnover means lower returns (up to 7% lower) and that those who have switched from telephone orders to online saw its own revenues decrease (while those of the bank in commissions increased). Between a click of the mouse and the fate of your money, it's worth taking a moment to reflect.
Don't get complacent - Attributing successes to our abilities and offloading failures onto others or circumstances is not the best way to learn from experience. Healing from “Superman Syndrome” it can help you manage your savings better.
Don't underestimate these 10 tips.
