Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias, + Website

CHAPTER 7

Good Enough Investing

So, I hope we're all prepared to face up to the nasty fact that we're all biased, all confused, and all self-deluded. But in the land of the blind the one-eyed are monarchs, and we don't need to improve ourselves very much in order to make a difference, relative to everyone else. This chapter will bring together the research I've presented and some of the methods I've only so far mentioned, to come up with a good enough process for investors when they come to make investing decisions.

But I want to be clear: this is just the start of a journey. The process of becoming a better, less biased investor can't be summarized in one short chapter. In fact, as we'll see, my aim is to teach you to fish because if you buy a man a fish he eats for a day but if you teach a man to fish then he eats forever. Only we have to deal with the fact that sometimes the fish disappear, and then the lake. And then the volcano goes off and nothing looks the same again.

Remember: markets are adaptive, people are reflexive, and the ground underneath our feet is unstable. But if we understand where that instability comes from we can, at least, start to build earthquake proof homes.

I want to start this chapter with seven simple takeaways from the vast amount of research we've covered in this book. These are my guiding principles, and I try to revisit them every so often to see if I'm still honoring them.

#1: THE RULE OF SEVEN

We can only deal with a limited set of ideas before ...