As in most things to do with money – the definition of a good investor generally depends on the entire body of work, not just the one decision that paid off. In contrast, being a “bad investor” doesn’t always mean just the young person who invested in Enron and McLeod and then lost everything in his Roth IRA (the author).
What I hope to explore in the next number of weeks is how we can be better investors than we are today. Progress, not perfection will be the theme. Today, I’d like to discuss is not necessarily how to adjust our money mindsets and investment related personality traits but to recognize them. For instance, if we know we have a proclivity towards panic – how can we accept that we are in fact panicking, but not sell our entire stock portfolio creating tax liabilities and forgoing future growth potential?
Currently, there is an entire field of study around the subject of how humans behave when it comes to their financial decisions. Behavioral finance reviews a subject like what happened recently and asks how we might then behave when we see something similar in the near term. After we have recently had a big financial win in the market are we then more likely to take bigger risks because, hey, we’ve got this?
