Humans are naturally poor investors, often tripped up by our minds. Cognitive biases distort our thinking, while emotional biases cloud our judgment, leading to irrational investment decisions and market anomalies like crashes and bubbles. To become better investors, we must understand these biases and how they influence us. This requires constant vigilance and a commitment to objective decision-making. That's why a solid investment process is important. By providing a structured framework for analysis, it helps us make rational choices, free from emotional impulses and flawed thinking. It's one of the reasons I built 80-20 Investor and its algorithm.
In this article, I'll explore 14 common behavioural biases, explain their impact, and offer actionable strategies to mitigate them. While I explore the biases in turn, they don't occur in isolation. When making investment decisions, we can be hindered by several biases combining to lead us astray.
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