It’s the spring of 2020, and the market is incredibly volatile.
It soars up one day and plummets down the next.
No one knows what to expect from the market or the economy.
No one knows what to expect, period.
What can we do in the midst of such turbulence? What should we do?
Unfortunately, what our minds want to do and what we should do are at war with each other.
For example, your mind might want you to panic sell after a sharp market downturn.
“Take me off this roller coaster!” it screams.
But in reality, turning paper losses into real losses is a mistake. This act often costs investors much more than staying the course.
Your mind is nowhere near that conclusion, though. It’s too busy having an emotional reaction to the news.
How can you bring your mind back to reality? Can you even prevent yourself from reacting to panic?
Today’s guests say yes. It’s possible to save yourself from yourself when you recognize the cognitive biases held by your mind.
Dr. Steve Wendel is a behavioral economist and the head of behavioral science at Morningstar, an independent investment research firm.
Samantha Lamas is also a behavioral researcher at Morningstar.
On this episode, they discuss the hidden biases in our decision making and how these hidden biases affect us – particularly during this pandemic and during times of high anxiety and stress.
They also discuss techniques that help us avoid deceiving ourselves.
You’ll enjoy this episode if:
- You want to avoid cognitive biases that could lead to a devastating financial loss
- You struggle to tune out the noise around you – the panic, the herd mentality, the headlines
- You get lost in the tiny details of your portfolio and constantly worry about what the market is doing
- Bonus: you enjoyed our previous interview with Dr. Wendel
- Sam Lamas’ articles on Morningstar.com
- The Little Book of Behavioral Investing, by James Montier
- Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich
- The Honest Truth About Dishonesty, by Dan Ariely
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