Part of being an astute investor involves hours of analyzing the capital markets, actively researching the companies and strategies you invest in, and staying up to speed on current events. That’s plenty of work on its own.
But there is another aspect to smart investing that generally receives less attention but is arguably equally important. It involves studying ourselves – our behaviors and tendencies as investors, how and why we make investment decisions, and how those decisions may impact our returns over time.
Most of this research falls within the field of Behavioral Finance, which challenges the assumption that “individuals act rationally and consider all available information in the decision-making process.”1 Investors rarely do those things, and that’s why studying behavioral finance can be so beneficial. The general thinking is that the more we understand the decision-making process, the better equipped we can be to help investors avoid common mistakes while simultaneously establishing guidelines for a disciplined investment process.[+] Read More