AVOIDING ‘HINDSIGHT BIAS’ AND OTHER INVESTING PITFALLS

The Globe and Mail – By Gail Johnson

web_gmmGina Macdonald finished a degree in psychology before pursuing a career as a fee-only financial adviser and portfolio manager. That social-sciences background has proved useful: Ms. Macdonald often finds herself helping clients manage their emotions as much as their portfolio holdings.

Among the “cognitive errors” she encounters are overconfidence and hindsight bias, which can make an investor believe that a past event was more predictable than it actually was. Another is regret avoidance – where investors refuse to admit to themselves that they’ve made a poor investment choice so they don’t have to deal with the unsettling emotions that the decision brings up.

All can affect an investor’s success.

“When I first started in this field, a lot of people thought psychology had nothing to do with financial planning,” says Ms. Macdonald, who is a principal at Vancouver’s Macdonald Shymko and Co. Ltd. “Now people have become more evolved and know that money has a lot of psychology to it. Click here to read the rest of the article.

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