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December 2, 2014

Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

Biases that make you a bad investor

By Morgan Housel






JewishWorldReview.com | Investing shouldn't be hard. Buy quality companies at good prices and hold them a long time. Not much more to it than that.

Yet so many investors -- maybe most -- fail to beat a basic index fund. Why?

Blame your brain. We come hardwired with all kinds of biases that cause us to misinterpret information and push us into regrettable decisions. Here are some of the biggest:

        Confirmation bias, or starting with an answer and then searching for evidence to back it up.

If you start with the idea that hyperinflation is imminent, you'll probably read lots of literature by those who share the same view. If you're convinced an economic recovery is at hand, you'll probably search for other bullish opinions. Neither helps you separate emotion from reality.

Charles Darwin regularly tried to disprove his own theories, and the scientist was especially skeptical of his ideas that seemed most compelling. The same logic should apply to investment ideas.

        Recency bias, or letting recent events skew your perception of the future.

When the country's in a bull market, you think it'll last forever. When the country's in a recession, you think the economy will never recover. After a banking crisis, you think another is right around the corner. Rarely is that actually the case, but it's what feels right when memories are fresh in our minds.

        Backfiring effect. When presented with information that goes against your viewpoints, you not only reject challengers, but double down on your original view.


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Voters often view the candidate they support more favorably after the candidate is attacked by the other party. In investing, shareholders of companies facing heavy criticism often become fanatical, die-hard supporters for reasons totally unrelated to the company's performance.

        Anchoring, or letting one piece of irrelevant information govern your thought process.

Best example: Investors anchor to the idea that a fair price for a stock must be more than they paid for it. It's one of the most common, and dangerous, biases that exist. "People do not get what they want or what they expect from the markets; they get what they deserve," writes Bill Bonner of The Daily Reckoning.

        Framing bias, or reacting differently to the same information, depending on how it's presented.

Example: "Google shares surge to highest level in five years."

"Google shares haven't gone anywhere in five years."

Both statements might be true.

        Skill bias, or when education and training cause confidence to increase faster than ability.

The best example is the management team of the hedge fund Long Term Capital Management, which was staffed thickly with doctorates and two Nobel laureates. The fund exploded in 1998 under an incomprehensible amount of leverage. Behind the failure was raging overconfidence. "The young geniuses from academe felt they could do no wrong," Roger Lowenstein wroteŁin the book "When Genius Failed."

        Hindsight bias.

Out of literally millions, only a handful of investors truly saw the financial crisis coming.

If you disagree with that statement and respond, "No, any idiot could have seen it coming from a mile away," you're suffering from hindsight bias. Only after the fact do all the puzzle pieces make sense. That's why bankruptcies outnumber billionaires.

        Pessimism bias, or underestimating the odds of something going right.

Financial adviser Carl Richards writes: "We focus so much on protecting ourselves from negative surprises (job loss, disability, divorce, death ... the whole catastrophe) that we forget to factor in the positive ones (a raise, a business that works out, a new career, a new bull market) that can sometimes change our entire outlook."

        Illusion of control, or thinking that your decisions and skill led to a desired outcome, when luck was likely a big factor.

If you've ever made money day trading and patted yourself on the back for a job well done, you're probably a victim of the illusion of control.

        Escalation of commitment, or the classic "throwing good money after bad."

This includes doubling down on a plunging stock, not because you believe in its future but because you feel the need to make back losses. It happens all the time at blackjack tables, too.

        Risk perception bias, or attempting to eliminate one risk but exposing yourself to another, potentially more harmful, risk.

Here's an example I've written about before: In the year after 9/11, air travel fell and car travel jumped. Understandably, people suddenly felt planes were more dangerous than cars.

But statistically, the opposite is true. In his bookŁ"The Science of Fear," Daniel Gardner notes that if there were a 9/11 every day for an entire year, the odds that you'd be killed by terrorists would be one in 7,750. By comparison, the annual odds of dying in a traffic accident are one in 6,498.

German psychologist Gerd Gigerenzer estimates that the increase in automobile travel in the year after 9/11 resulted in 1,595 more traffic fatalities than would have otherwise occurred. Add the impact that stress had on people's health, and the reaction to 9/11 may have been more deadly than the attack itself. "People jump from the frying pan into the fire" said Gigerenzer.

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Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.


Previously:


Nine financial rules you should never forget

Gaining from financial destruction

How to read financial news

Housing: Partying like it's 1925

A rebuttal to student loan horror stories

CONGRATULATIONS: We just saved half a trillion dollars

End this crazy tax: It will boost the economy

Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



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