The most overlooked aspect of investing is behavior. Instead, we focus on intelligence, timing, forecasting, and a host of other things we believe carry more weight in the returns we earn. Some of it matters, but not nearly as much as we hope.
Of course, Ben Graham tried getting the importance of behavior across decades ago. He plainly explains it in the introduction to The Intelligent Investor: “For indeed, the investor’s chief problem — and even his worst enemy — is likely to be himself.” If you can overcome yourself, you’ll be better off than most investors.
Here’s the thing.
Humans have been hardwired over the centuries with quick natural responses that enhanced our survivability. Thousands of years ago, survival required focusing on what’s around the corner instead of what’s far off in the distance. So we became great at leaping to the first conclusion rather than thinking things through.
That works great if we want to avoid being mauled by an animal, but works terribly if we want to survive in the stock market. Simply, human nature hasn’t kept pace with our changing environment. Continue Reading…