Investment Biases and Decision-Making

This chapter explores the behavioral biases affecting investment choices, such as loss aversion and overconfidence, and how these can lead to misguided decisions. It emphasizes the influence of storytelling in investments and the tendency to ignore base rates, resulting in flawed decision-making. Additionally, it addresses the challenges of investing amidst inflation and the need for a disciplined approach focusing on long-term performance.

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On today’s episode, Clay chats with John Jennings about his new book - The Uncertainty Solution.

John Jennings is President and Chief Strategist of St. Louis Trust & Family Office, which has $12 billion dollars in assets under management. He is also a member of the firm’s Management Committee, on its Board of Directors, and also serves on the Investment, Risk Management, and Trust Committees. John works closely with client families, advising them in all areas of wealth management.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro.

01:38 - Why humans are hard-wired to avoid uncertainty.

06:40 - Mental models we can use to invest more intelligently.

10:08 - How humans tend to react when faced with uncertainty.

16:56 - Why we are wired to quickly come to conclusions and tend to confuse correlation with causation.

27:17 - How the improbable is much more probable than we might expect.

32:13 - Why the economy is not directly correlated with the stock market.

47:51 - Where investing falls on Michael Maubbousin’s Skill vs Luck continuum.

1:00:53 - How behavior biases like loss aversion and overconfidence affect our investment decisions.

1:06:14 - How storytelling can trick us into making poor investment decisions.

1:10:13 - What base rates are and understanding base rates can help us make more intelligent decisions.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
John’s new book - The Uncertainty Solution.
John’s website.
John’s firm - St. Louis Trust & Family Office.
Check out our newly released TIP Mastermind Community.
Check out our recent episode covering the 2023 Berkshire Hathaway Shareholder Meeting or watch the video.
Follow Clay on Twitter.

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