“The investor's chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham.
The potential impact of technology broadening the demographic reach and accessibility of investing out of its historical concentration in the already rich cannot be understated.
A lesser talked about impact is its role in overcoming the human brain and our tendency to shoot ourselves in the foot when it comes to making good decisions about money and investing. That we are all fools when it comes to money should not be underestimated and its largely hard wired and difficult to overcome.
Bias and human psychology significantly impact investing performance through various mechanisms:
😼 Overconfidence Bias: Investors often overestimate their knowledge and ability to predict market movements, leading to excessive trading and risk-taking.
🐄 Herd Mentality: The tendency to follow the crowd can result in buying high and selling low, contrary to the principle of buying low and selling high.
😱 Loss Aversion: Investors fear losses more than they value gains, causing them to hold onto losing investments for too long and sell winning ones too early.
😚 Confirmation Bias: Seeking out information that confirms preexisting beliefs can lead to poorly diversified portfolios and missed opportunities.
🙉 Anchoring: Relying too heavily on the initial piece of information (e.g., the purchase price of a stock) can skew investment decisions and hinder adaptability.
Understanding and mitigating these biases is crucial for making rational, informed investment choices but better still we can embrace the fact we are fallible and use technology to overcome it. Passive investing, sweeps, roundups, Robo investing, auto funding are all methods by which we can take our selves and our tendency to be stupid out of the equation.
Unifimoney is a turnkey digital wealth management solution enabling Community FI's to compete with Fintechs and Big Brand Banks at speed, with no technical integration and low cost. We are owned by a large family office backed investment firm Palm Ventures. If you would like to speak to us please reach out or visit our website
