Weekend Reading: Cognitive Bias Edition

Lately I’ve been interested in behavioral finance – the effect our emotions and inherent biases have on the financial decisions we make.  How many of us have been reluctant to sell an investment at a loss, and rationalize that we’ll sell once it “comes back” and we break even?  That type of behavior is called loss aversion, and it happens more frequently than we think.

In the latest MoneySense magazine, Dan Bortolotti wrote an excellent piece called “Train your investing brain“, which explores seven of the most common behavioral biases and how investors can overcome them. The biggest challenge investors face?  Overconfidence.

In his Masters of Money series, Rob Carrick looked at how we handle investment losses.  The results weren’t pretty.  About 36 percent of investors fled to safety after a loss, either for the short-term or permanently.  Carrick says this type of behavior is the number one reason people are frustrated with their investing results.

The Reformed Broker Josh Brown poked fun at the news media in a funny piece called “Why did the stock market sell off today?”  The correct answer is: More sellers than buyers.

Holy Potato says the absurd concept of index investing – accepting market returns with minimal effort – turns off many investors who think they need to work harder to “outsmart” the market and eke out a few more percentage points of return.

Jason Zweig of the Wall Street Journal dissects a popular cartoon about investor behavior – inside the madness of the stock market.

Here’s a useful flowchart to help you decide if you should use your home equity to buy stocks.  It’s in response to “the worst financial advice ever given.”

This week on the Because Money video podcast, the panel discussed why you should care about how financial advice is regulated in Canada.

Fee-only planner Jason Hull vents about the people he meets who say they can’t afford a financial planner, even though a good planner can get help get their finances in better shape.

Start with a penny and double it every day for a month and you’ll have over $10 million dollars. The Budgets are Sexy blog explains the power of compounding.

The mom & dad school of tax preparation is a tried and true way for students to get their tax refund.  Adam Mayers explains why he’s happy to have lost a client this year.

Like most Canadians these days, Dan from Our Big Fat Wallet doesn’t have a defined benefit pension at work.  He lists all the other retirement income sources that he can draw from.

Mark from My Own Advisor explains the approach he takes to investing and contributing to his RRSP and TFSA.

Have a great weekend, everyone!