Jim Letourneau's Blog

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Investment Biases - 10 Ways to Lose Money

I just ran across a post on Jeremy Dean's PsyBlog - Why We Buy: How to Avoid 10 Costly Cognitive Biases. "Cognitive bias" is a fancy term for the biggest barrier to investment success.

I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator; that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on the sidelines, waiting to jump into the action, plow into the game.

Jesse Livermore

Jesse Livermore was a great speculator, accumulating great wealth from humble beginnings. As a person he struggled with lifelong depression and eventually committed suicide. Despite his troubled life, Livermore's study and application of psychology  to trading provide timeless lessons for modern speculators.

I'll be working through these biases personally and writing about them in future posts.

  1. Status quo bias

  2. Post-purchase rationalisation

  3. Relativity trap

  4. Ownership effect

  5. Present bias

  6. Fear of losses

  7. Familiarity bias

  8. Rosy retrospection

  9. Free!

  10. Restraint Bias

Try reading  Why We Buy: How to Avoid 10 Costly Cognitive Biases while thinking about about your own investments.