Ten Attributes of Great Fundamental Investors, Part II
6. “Beware of behavioral biases (minimizing constraints to good thinking).“ |
• | Confirmation Bias: It’s a tendency to reach a conclusion first, then gather data that “confirm” this preconception. |
• | Loss Aversion: Investors are twice as likely to be influenced by the pain of a loss than the enjoyment of a gain. This favors inaction over action, even when the facts suggest otherwise. |
• | Choice Paralysis: Information overload fosters indecision. |
• | Herding: Following the crowd, even if the facts suggest you shouldn’t. Warren Buffett refers to this as the “institutional imperative,” a tendency of money managers to follow the actions of their peers, even when it makes no sense. |
• | Recency Bias: Notable short seller and money manager Scott Fearon calls this “historical myopia,” a tendency to assume the recent past is a better predictor of the future than the distant past. |
• | The Bias Blind Spot: This is our inclination to believe we aren’t susceptible to the preceding behavioral biases that plague everyone else. |
7. “Think probabilistically (there are few sure things).“ |
8. “Update your views effectively.” |
9. “Position sizing (maximizing the payoff from edge).“ |
10. “Read (and keep an open mind).“ |
Source: http://www.stansberryresearch.com/dailywealth/3431/ten-attributes-of-great-fundamental-investors-part-ii
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