I am very glad that more and more of you are stopping by the Tacomob-website and I feel specially encouraged by all your positive E-mails.
One of the more frequent questions asked has formed the header to this post and there are dozens of answers to it.
Here are a few:
- Because you who reads my blog already know that investing for the long-term is the best thing that you can do with your money.
- Because there are so many experts out there to explain the technicalities of investing. And they are much better at it than I ever could be.
- Because being a genius on paper (after listening and reading those experts out there) does not guarantee success. We have to have the disposition to be successful investors.
- Because emotional faults will (not might!) lead us to be terrible investors. Here is a great example of a powerful investing truth: “You can be brilliant on one hand but still fail miserably because of what you lack on the other.”
- Because 95% (or is it 99% or even 100%?) of investing success is dependent on our emotions, our brain, our mind, our thinking…in one word, our investor-behavior. This “skill” is at the bottom of an investor’s hierarchy of needs. It’s the foundation.
- Because we seem to know less about the world inside our head than about the world our head is inside.
- Because detaching emotional feeling-states from cognition and thinking is simply not possible, since thinking and emotion are inseparable in the brain. The feeling state (whether it is euphoria, impartiality, greed, anger, or fear) colors the perception and interpretation of data. Thinking and feeling (and belief) are intertwined.
- Because nothing hurts an investor quite like irrational emotions that override rational judgments. Ultimately, it’s only our own behavior that does us in.
- Because wherever there is human judgment there is the potential for bias. The way to become better in our rational choices is to recognize the influence that our assumptions play in our forecasts and to question ourselves about them. The key to dodging the bias-pitfalls is to be aware of what our instincts tell us and to recognize behavioral land mines.
- Because there are so many cognitive biases out there that can fool us, I want to be aware of as many as possible. And as my memory is imperfect and cannot be trusted (!), I inscribe them in this blog for future reference.
- Because only the combination of opting for a simple, straightforward investing strategy and managing our complex emotions and biases is the path to success.
Hmm, so none of the above reasons motivates you to learn more about biases?
It is inside you. Real wealth comes from within.
The greatest single source of wealth is between our ears, because wealth is contained in brain power, not brute power.
It is our ability to think that is our chief source of value. In fact, I feel more like I’m a mind with a body to carry it around in.
We are in the information age, and knowledge is the raw material of production and value in this age. The only difference is between those who know more and those who know less.
Incidentally, do you know what is our most valuable asset in terms of cash flow?
It is our earning ability and all our education, knowledge, experience, and training have contributed to building it up.
I am convinced that the future belongs to the competent, to those who stay ahead of the curve, to those who engage in life-long learning and know how to manage their biases a bit better (than the rest of us).
Don’t misunderstand, though, biases are not always bad, though non-awareness of biases is.
I accept that we need these strange biases and weird mental processes, because, if not for the kooky minefield of tricks, shortcuts, and deceptions inside our heads, we wouldn’t function as well as we do in our daily lives.
I don’t blame my brain for its deceptive ways in setting me up to make mistakes in reasoning and perception. Instead, I thank it for doing the best it can to get me through one more day safely.
I just want to be sure to understand that I can never trust it unconditionally when trying to separate truth from fiction.
Actually, I used to think that the brain was the most important organ. Then, I thought, look what’s telling me that.
Don’t you also want to give yourself the best chance possible to avoid mistakes in how you think and how you perceive the world around you?
Have fun exploring the Tacomob-website and learning about how these biases operate and how they help you to navigate through a complicated world a bit more prosperously.
Along the way, you might even understand your own mind better.
“It’s like we are all sharing our bodies with another person, somebody called “Brain” who we barely know. This odd roommate is eccentric, is secretive, and doesn’t ask for our consent when it goes about most of its business. But it does mean well and performs important work that we literally could not live without.” — Guy P. Harrison
“One of the pervasive risks that we face in the information age is that even if the amount of knowledge in the world is increasing, the gap between what we know and what we think we know may be widening.” — Nate Silver
“It is much less dangerous to think like a man of action than to act like a man of thought.” — Nassim Taleb