How to Escape the Emotional Traps at Catch a Gideon

In Ch 18 of the Bogleheads Series we talked about keeping emotions in check when investing. Here are some emotional traps and how to avoid them.

Recency Bias - Never assume today’s results predict tomorrow’s. It’s a changing world.
Overconfidence - No one can consistently predict short-term movements in the market. This ,means you and/or the person investing your money.
Loss aversion - Be a risk manager instead of a risk avoider. Believing you are avoiding risk can be a costly illusion.
Paralysis by analysis - Every day you don’t invest is a day less you’ll have the power of compounding working for you. Put together an intelligent investment plan and get started. If you need help, seek out a good financial planner to assist you.
The endowment effect - Just because you own it, or are part of it, doesn’t automatically mean it’s worth more. Get an objective evaluation. Invest no more than 10 percent of your portfolio in your employer’s stock.
Mental accounting - Remember that all money spends the same, regardless of where it comes from. Money already spent is a sunk cost and should play no part in making future decisions.
Anchoring - Holding out until you get your price to sell an investment is playing a fool’s game. So is blindly assuming that your financial person is doing a great job without getting an objective reading of what’s really going on. Get a second opinion.
Financial negligence - Take the time to learn the basics of sound investing. It’s really pretty simple stuff. Knowing it can make the difference between having a life of poverty or one of prosperity.