We've Recognized the Investing Enemy

When it comes to investing, especially active investing in turns out your biggest enemy is yourself. Our human emotions literally are the worst decision maker when it comes to financial matters.

alt

Mitigating Yourself

The reality is a person can be smart, but people are dumb. When you think individually then logic can have a fighting chance, however once the herd mentality takes over you are basically done for.

Think about it - when everyone is freaking out and jumping ship, very often they look back and it turns out that was a great time to buy, not sell.

We get caught up in the hype. We get FOMO'd or scared and boom - we make a crap decision.

Probability Thinking

There is a very simple question we can always ask ourselves when weighing opportunities.

What is the probability of this happening?

You can apply this question to anything...

Here are some examples:

When BTC ripped to 20k in the matter of months the question would be..

What is the probability that BTC keep going straight up vs. is having a hard pullback as people book quick made profits?

We all found out the answer to that one and it was a bit obvious as nothing can go up in a straightline for an extended period.

With the U.S. Stock market one could ask..

Will we continue to see new highs or after 8 straight years of gains will we see a pullback?

What side are you placing the probabilities on for this one? I know which side I'm betting.

And so on and so on..

Here is the thing. I really don't care if I am wrong because over the long run if I keep acting on what is the more obvious probabilistic outcome then thing will turn out rather okay. Less much of the drama.

Anyway, a simple question to ponder when faced with an investment decision.