How To Avoid Common Investment Mistakes

How To Avoid Common Investment Mistakes by Hayley Carr, Burgundy Blog

As investors, each day we face triggers. Whether they manifest in our conversations with friends and colleagues, or in the barrage of daily media messaging, we are constantly surrounded by information that triggers hard-wired, internal “fight or flight” emotional responses. These responses originated as a means of survival for our ancestors who roamed the African Savannah, and have not adapted to our modern world. Most critically, they run counter to every sound investment decision we should make for long-term success.

Investment success can be distilled down to a single, simple principle: buy low and sell high. The difficulty lies in the implementation of a disciplined practice to consistently make decisions based on this principle, rather than be a victim of our counterintuitive emotional responses. So, if we apply a framework to our investment decision-making, we are more likely to remain disciplined and stick with reason over emotion.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

The latest issue of The View from Burgundy was written with this approach in mind. David Vanderwood, Portfolio Manager for Canadian equities, borrows a behavioural economics framework from Richard Thaler’s new book, Misbehaving, and applies it to investing. He demonstrates how this structured approach can help us to remove ourselves from a place of emotional bias, avoid pervasive errors that hinder our investment returns and focus on sound decision-making for long-term success.