When it comes to the world of investing, critiquing prior financial choices is a very common practice and it leads to us falling into the trap of hindsight bias. Studies have shown that people will go back and change opinions after the fact and then form new ones that more closely match how reality unfolded. It’s how we justify our past decisions and why it can be so difficult for investors to make better decisions moving forward.
So many of the actions we take are based on yesterday’s headlines, and that can be a completely misleading strategy to follow. This is why we have to put the right financial principles and framework in place rather than trying to time the market and chase returns. We know the market goes up, down and sideways, which is why we try to help clients catch their emotions through setting expectations and building a plan. Investors need to know there will be contractions in the market, and we want to make sure they take the steps to protect their portfolio.
Today we’re going to talk about the difference in strategies and actions between successful investors and imperfect ones. We’ll also discuss the process we use to help people build an investment strategy to outpace inflation and avoid these common pitfalls. Remember, the more you accept your investing imperfection, the closer to perfect you’ll be.
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Timestamps (show notes):
3:44 – Hindsight bias and its impact
7:10 – Mistakes aren’t one dimensional
9:08 – An example of an investing mistake
14:59 – Having the right process in place
23:11 – Habits of good investors