5/19/2018. The Psychology of Investing Designing an Investment Plan Using an Investment Advisor. Where to next?

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1 The Psychology of Investing Designing an Investment Plan Using an Investment Advisor Where to next? 1

2 What is your goal? How are you going to achieve your goal? time interest skill set style What can trip you up? confounding messages from the experts psychology of investing/behavioral finance What about using a financial planner? How are you going to achieve your goal? time interest skill set style What can trip you up? confounding messages from the experts psychology of investing/behavioral finance What about using a financial planner? 2

3 What is your goal? What can trip you up? confounding messages from the experts psychology of investing/behavioral finance What about using a financial planner? What is your goal? How are you going to achieve your goal? time interest skill set style psychology of investing/behavioral finance What about using a financial planner? 3

4 Messages from the experts : An investment in knowledge pays the best interest." - Benjamin Franklin Don t fall in love with your stocks. Trade the chart, not the story. Messages from the experts : Rich Investors are patient with their winners and extremely impatient with their losers. Patience is your biggest investment asset. Bulls and bears make money. Pigs get slaughtered. "In investing, what is comfortable is rarely profitable." 4

5 Messages from the experts : "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett "How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." - Robert G. Allen Cash is king. Messages from the experts : Invest in what you know. Peter Lynch Sell in May and go away. Bonds are safer than stocks. 5

6 I like these guidelines (from Taos Global Investors, LLC): Always invest with a plan. Discipline trumps conviction. New Investment Opportunities come along every day, but capital losses are permanent. Track, analyze, report, and reassess everything. There are lessons to be learned from each trade. Guidelines cont d (from Taos Global Investors, LLC): Don t let bad trades turn into investments. There are times to invest passively and times to manage actively; best to understand the difference. Flexibility is the investor s greatest asset. 6

7 Guidelines cont d (from Taos Global Investors, LLC): Sell your Losers and let your Winners run, and The Trend is your Friend are enduring Wall Street sayings for a reason. Market Sentiment is just as important as Economics and Fundamentals even more so at tops and bottoms. Volatility creates fear for many investors and opportunity for others. All Rules are meant to be broken. Markets are never wrong opinions can be. What is your goal? How are you going to achieve your goal? time interest skill set style confounding messages from the experts What about using a financial planner? 7

8 Behavioral Finance Seeks to explain why investors make irrational financial decisions. Some common PSYCHOLOGICAL traps: The Anchoring Trap to a thesis or to a price Sunk Cost Trap Confirmation Bias Recency Bias The World is Ending Trap The Its on sale Trap The It can t possibly go lower Trap The I ll wait until it goes back up to sell Trap 8

9 What is your goal? How are you going to achieve your goal? time interest skill set style What can trip you up? confounding messages from the experts psychology of investing/behavioral finance Using an investment advisor Another strategy How do you select one? What to ask? 9

10 Where to next? Despite all the hype to the contrary, Investing is NOT easy! 10

11 Whatever path you take, enjoy the journey! 11