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The Top 7 Reasons Why Youre Losing All That Money

Joel Brown (Founder of Addicted2Success.com)

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Today we feature a list of “The Top 7 Reasons Why Youre Losing All That Money“. The aim of behavioral finance is to better understand why people make the financial decisions they do. The field of study is becoming widely accepted. In fact, it’s such a crucial part of the Chartered Financial Analyst (CFA) curriculum, a course of study for Wall Street research analysts.

Don’t be intimidated. You might learn something about why you make the financial and investment decision you do.

 

You think you’re great at investing.

Overconfidence may be the most obvious behavioral finance concept. This is when you place too much confidence in your ability to predict the outcomes of your investment decisions.

Overconfident investors are often underdiversified and thus more susceptible to volatility.

 

You think the past is an indicator of the future.

A company might announce a string of great quarterly earnings. As a result, you assume the next earnings announcement will probably be great too. This error falls under a broad behavioral finance concept called representativeness: you incorrectly think one thing means something else. Another example of representativeness is assuming a good company is a good stock.

You don’t know how to handle new developments.

Anchoring is related to overconfidence. For example, you make your initial investment decision based on the information available to you at the time. Later, you get news that materially affects any forecasts you initially made. But rather than conduct new analysis, you just revise your old analysis.
Because you are anchored, your revised analysis won’t fully reflect the new information.

 

You don’t want to book a loss.

Loss aversion, or the reluctance to accept a loss, can be deadly. For example, one of your investments may be down 20% for good reason. The best decision may be to just book the loss and move on. However, you can’t help but think that the stock might comeback.
This latter thinking is dangerous because it often results in you increasing your position in the money losing investment. This behavior is similar to the gambler who makes a series of larger bets in hopes of breaking even.

 

You remember your past mistakes.

How you trade in the future is often affected by the outcomes of your previous trades. For example, you may have sold a stock at a 20% gain, only to watch the stock continue to rise after your sale. And you think to yourself, “If only I had waited.” Or perhaps one of your investments fall in value, and you dwell on the time when you could’ve sold it while in the money. These all lead to unpleasant feelings of regret. Regret minimizationoccurs when you avoid investing altogether or invests conservatively because you don’t want to feel that regret.

Your risk tolerance changes with the direction of the market.

Your ability to tolerate risk should be determined by your personal financial circumstances, your investment time horizon, and the size of an investment in the context of your portfolio. Frame dependenceis a concept that refers to the tendency to change risk tolerance based on the direction of the market. For example, your willingness to tolerate risk may fall when markets are falling. Alternatively, your risk tolerance may rise when markets are rising.This often causes the investor to buy high and sell low.

You always have good excuses to explain why you were wrong.

Sometimes your investments might go sour. Of course, it’s not your fault, right? Defense mechanismsin the form of excuses are related to overconfidence. Here are some common excuses:

  • ‘if-only’: If only that one thing hadn’t happened, then I would’ve been right. Unfortunately, you can’t prove the counter-factual.
  • ‘almost right’: But sometimes, being close isn’t good enough.
  • ‘it hasn’t happened yet’: Unfortunately, “markets can remain irrational longer than you and I can remain solvent.”
  • ‘single predictor’: Just because you were wrong about one thing doesn’t mean you’re going to be wrong about everything else, right?
  • ‘dog ate my research’**

 

**This particular excuse isn’t identified in behavioral finance as far as we know. But we can imagine someone using it.

I am the the Founder of Addicted2Success.com and I am so grateful you're here to be part of this awesome community. I love connecting with people who have a passion for Entrepreneurship, Self Development & Achieving Success. I started this website with the intention of educating and inspiring likeminded people to always strive for success no matter what their circumstances.I'm proud to say through my podcast and through this website we have impacted over 200 million lives in the last 10 years.

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Why It’s So Important To Break Out Of Your Comfort Zone

Joel Brown (Founder of Addicted2Success.com)

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Fear of Snakes

So I completed a Snake Handling course 6 years ago and during the final test of the course, we were asked to capture and bag 5 of Australia’s Deadliest snakes in a small confined room. The room had a Tiger Snake, Dugite, King Brown, Death Adder and a Red-Bellied Black Snake all slithering around at the same time. I couldn’t believe what I had got myself into.

Snakes were one of the biggest fears of mine. I would imagine a snake running underneath my feet from time to time and I would actually bring my feet up off the floor to avoid getting entangled or bitten by these imaginary snakes I had created in my mind. I would even have nightmares about snakes biting me and it would wake me up in sweats in the middle of the night.

I could have never imagined doing this in my life but I did it because I knew that I had to get passed this ridiculous fear I had of snakes, and I am grateful I was able to show up for it.

Checkout this podcast episode where I share how You can Master your Sub Conscious Programming around your fears in 2 Steps:

While attending this course, the subject of Fear was brought up and the presenter asked a number of people:

 

“What Are Your Top 5 Fears?”

– Public Speaking

– Cancer

– Sharks

– Snakes

– Heights

Were at the top of the list for most people.

 

The instructor carried on with a story of how he had just arrived back from a trip to the Northern Territory of Australia to visit an aboriginal community where he had met a 7-year-old boy who was absolutely scared to death of spiders and the dark.

Killer crocodile fearIt did not matter what kind of spider it is, he was scared and that was that. This boy would hunt crocodiles and lizards but was scared of even the non-venomous spiders.

All he had learned from a very young age was that spiders are dangerous and that they WILL kill you, yet the crocodiles and snakes that the boy would play with and hunt for are by far more deadly than most spiders that your everyday human would come across.

He was taught between the crucial years of 1-6 yrs old that the dark is full of evil happenings and that spiders are incredibly deadly and will kill him if he goes anywhere near them. So he was devastated to sleep in the dark and would jump on near by people just to get away from a spider nearby.

I’m not here to say that spiders aren’t dangerous, they are, and some out there have the potential to kill you. This boy was right to be cautious around spiders but where he lacked knowledge, or the right information about these creatures, eventually left him fearful of something he had never really understood.

This boy is just an example of many other people out there that are limited by their fears because of the little that they know. The less you know, the more fearful you are. This is only human and we are naturally scared of the unknown.

So the key thing here is we need more “KNOWLEDGE!” and it is in our best interest to want to understand how things work if we want to become less fearful of what the wild and wonderful world we live in has to offer.

You have to “EXPERIENCE” things to have a better understanding of the activity or whatever it is you are most scared of.

Joel Brown Snakes Fear

Joel Brown – Certified Snake Handler

When you increase your knowledge you can grow to the level where your fear is set at, so when the two meet it creates a level called “RESPECT”.

This is the perfect level to be on because you will now have a respect for what you fear which will allow you to then work with it rather than being submissive and missing out on the wonderful feeling of successfully OWNING! the outer areas of your comfort zone.

Everybody has a fear of some sort and learning more about what you fear and even voyaging through your ‘un-comfortable zone‘ will prepare you for the hard knocks in life on your road to success.

 

I have a few more fears to conquer myself and I am happy to say that I have crossed ‘Snakes’ and a number of other top things off my list. I’m sharing this story with you in hopes that you too will face at least one or two of your fears. Not to say that “you did it“, but to prove that you can outgrow your own personal limitations.

Your fears could be holding you back, they could even be the final piece you need to experience a brand new lifestyle or a brave new world of fun.

 

So get out there, learn more and grow!

 

No matter the storm, may your Faith be stronger than your Fears – Joel Brown

 

 

Feature Image Original Source: Indiana Jones – Raiders Of The Lost Ark

 

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