Three More Ways To Become A Bad Investor

Cass Sunstein, in a recent Bloomberg article in which he examined the causes of his own personal investing mistakes, reminisced about a dumb selling decision that he made in 2011. Putting himself on the couch to figure out what he did wrong, Sunstein came up with three reasons to explain why he brashly chose to sell something on a whim:

“Of the behavioral mistakes to which I fell victim, the first is called “availability bias.” Behavioral scientists have shown that if something has happened in the recent past, it is cognitively “available,” and people tend to exaggerate the probability that it will happen in the future.

Availability bias isn’t exactly irrational, but it can produce big mistakes. The stock market did collapse in 2008, but it doesn’t collapse very often, and in 2011 I shouldn’t have focused on the risk of another meltdown.

The second mistake involves “loss aversion.” People

Read the rest of this article!

Setting Measurable Investing Goals

Henry Ford famously said: “That which can be measured, can be managed.” When he met with his company’s sales managers approximately a century ago, he told them that he could get the best out of them by telling them to do their best, but rather, he set specific goals that: (1) were few in number so that focus would not stray; (2) were measurable; (3) contained a deadline; (4) were tangible and realistic; and (5) resulted in an award if they were met. Notably, he would offer $500 sales bonuses to any executive who could achieve a monthly sales goal of $10,000, and then he would add an additional $100 bonus for each goal level reached above that.

With investing in publicly traded stocks, it is tricky to set a specific goal because so much is out of your control and the best targets focus as exclusively as they can … Read the rest of this article!