The Only Three Questions That Still Count: Investing By Knowing What Others Don't, 2nd Edition

The Great Humiliator’s Favorite Tricks

If we were more evolved as investors, perhaps TGH would be reclassified as “The Mild Humiliator” (TMH) or even “The Softer, Gentler and Kinder Trickster” (TSGKT). Our preconditioning keeps us repeatedly humiliated by the market through psychological tendencies we fall for over and over again. Unfortunately, and as mentioned before, our biases don’t work alone—they work in concert with each other, making completely nonsensical investment decisions seem rational even while we commit them. Your brain won’t tell you when you’re making a stupid mistake because it doesn’t think the cognitive errors you make are stupid. Rather, your brain tells you the investments “just didn’t work out.” And then you look for something to blame it on—regret shunning.

Your only weapon is Question Three—with every decision you make, ask: What the heck is my brain doing to lead me astray this time? The more sane and rational a decision may seem, the more important it is to ask. I’ve given you some examples already of your brain working against you, and I give you more later in this book. You can make a list of them and keep it by your desk or nightstand. But you must keep asking yourself the question with every decision: What is my brain doing to blindside me now?

Consider the following hypothetical (though very plausible) scenario with an investor we’ll call Jim. See if you’ve ever made similar decisions.

Let’s say Jim’s overall portfolio has risen 50% over the past ...