Monday, November 25, 2013

Mind over Matter -

Interesting Links from the web, from Jim Parker's Coffee Break newsletter. This week Jim observes that:

...when asked what makes a good investment, say they “just know”. They have a gut feel. 
Our tendency to equate exterior confidence with being right about a subject is the theme of this week’s Coffee Break. Put simply, we are very good at fooling ourselves about our investment skill.

According to Nobel Prize-winning psychologist Daniel Kahneman, human beings have two ways of thinking. System 1 is fast, intuitive and emotional. System 2 is slower, deliberative and logical. There are times when System 1 makes sense, like in choosing a piece of music to listen to. But in the world of investment, fast-thinking can be our enemy. This video explains.

Our biggest enemy in the world of money and investing is often ourselves. We exhibit what psychologists call “biases”. Among them is over-confidence, a view that we are more astute investors than everybody else. Another one is that we are typically more sensitive to potential losses than we are to gains. This article describes a few ways we fool ourselves.

We’re wired to think we can “do better” than what the market offers. That’s fine, but the record shows most investors end up with significantly less. And the gap between the market and our actual returns is often due to our own behaviour. In this short video, communicator Carl Richards shows how we can often stand in our own way.

Jim Parker, Vice President, DFA Australia Limited