537: Markets Do Not Behave Like Saber-Toothed Tigers

You know, the longer I’ve been an investor, the more I realize this simple truth: the biggest threat to your wealth isn’t the market… it’s your own brain.

We’re all wired the same way—with instincts that were fantastic for avoiding saber-toothed tigers but are absolutely terrible for making good financial decisions.

Take something simple like a marathon. If I asked you to predict next year’s top finishers, you’d look at last year’s results. That works. Human performance doesn’t flip upside down in twelve months. The best runners tend to stay the best runners. There aren’t that many variables to consider.

When we try to apply that same logic to investing, it often blows up in our faces.

There are way too many variables to consider when it comes to market behavior to make simple assumptions.

Entire sectors rotate from darling to disaster in a heartbeat. Yet our brains keep telling us, “Hey, this worked last year, surely it’ll work again.” 

In my view, nowhere is that psychological mismatch more obvious than in real estate right now.

A few years ago, when real estate was on fire—cheap debt, rising rents, deals getting snapped up before lunch—everybody wanted in. 

Fast-forward to today. We’ve had a rate shock. Values have reset. Properties are selling at steep discounts. And Construction starts have fallen off a cliff. Real estate got slaughtered.

But look around now. The market has reset. Assets are selling 30 percent below where they did just after Covid. Jobs and population growth in places like the Carolinas, Texas, and Arizona look fantastic, and interest rates are falling quickly.

Every macro indicator you can name is pointing to a major buying opportunity—one of the best in the last 15 years. So naturally… few people are paying attention. Markets that are bottomed out are not sexy. If it’s not frothy, it’s not newsworthy.

This is human nature in a nutshell.

When assets are expensive and risk is quietly rising, people feel brave. When assets are attractively priced, and future returns look great, people get scared.

It’s recency bias: assuming whatever just happened will keep happening.

It’s loss aversion: we fear losing a buck more than we enjoy making one.

It’s herd behavior: we’d rather be wrong with the crowd than right by ourselves.

And of course, it’s confirmation bias—where people seek out whatever headlines validate the emotions they’re already feeling.

It’s not logical. It’s not strategic. But it is human.

And that’s why this week’s guest on Wealth Formula Podcast is of value to listen to.

He’s one of the leading experts in the world on investor psychology—someone who can explain, with real data, why even intelligent investors consistently jump into markets late, bail out early, misread risk, and miss the best opportunities… especially the ones sitting right in front of them.

If you’ve ever wondered why you sometimes make brilliant decisions and other times do the financial equivalent of touching a hot stove twice, this conversation is going to hit home.

Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at phil@wealthformula.com.

 There’s too many variables when it comes to market behavior to make simple assumptions. You know, you got entire sectors that can rotate, uh, from being the darling to the disaster in, in a heartbeat, right? You get our brains keep telling us, Hey, this worked last year, and surely it’ll work again, right?

Welcome everybody. This is Buck Joffrey with the Wealth Formula Podcast. Coming to you from Montecito, California. Before we begin today, I wanna remind you that there is a website associated with this podcast, it’s wealthformula.com. And uh, if you would like to get more in the community, get involved with our, uh, credit Investor Group, investor club, uh, visit wealthformula.com and uh.

Become part of the, uh, community rather than just, uh, uh, somebody who’s listening on the sideline. Again, that is wealth formula.com. Let’s talk a little bit about today’s show. Um, you know, the longer I’ve been an investor. The more I realize, uh, that there is a simple truth that, you know, sometimes the biggest threat to your wealth isn’t the market, it’s your own brain.

And when I say your own brain, I’m not talking about just you. I mean, I have made some mistakes and a lot of it is really just, you know, uh, emotional or psychological traps and things like that. We’re all wired the same way. And you know, we have instincts. That we’re really, really good at saving us from the things that we evolved to avoid, like saber doth, tigers.

But those same things are not great when it comes to. Financial decisions. You know, let’s just take the example, and we talked about this in the show today a little bit, but the example of a marathon, right? And if you ask someone to predict who, um, the top finishers would be, the first thing you’d do is you just go back and you look at, well, who were the top five finishers?

Uh, or, or so be last year? Because human performance, it doesn’t really flip upside down in 12 months. I mean, the reality is that. The best runners stay. The best runners typically, um, there isn’t a lot of variables to consider. The problem is that when we try to apply that same kind of logic to investing, it often blows up in our faces and.

And the reason for that is that it’s not a single variable issue. It’s not like, oh, how’s this runner doing? The runner’s feeling good this year not doing so good this year. Um, there’s too many variables when it comes to market behavior to make simple assumptions. You know, you got entire sectors that can rotate, uh, from being the darling to the disaster in, in a heartbeat, right?

Get our brains keep telling us, Hey, this worked last year and surely it’ll work again. Right? You know, I’ll, I’ll say this again, in my view, there’s nowhere where the psychological mismatch is more obvious right now in multifamily real estate in particular. A few years ago when real estate was on fire, right?

I mean, it was going crazy. It was frothy, cheap debt, rising rents, deals getting snapped up so quickly. Everybody wanted in right? Fast forward today, we had a bloodbath. We had a rate shock, values reset, property selling at steep discounts, 30%. Often is what we’re seeing through our investor group. Um, construction starts have, have fallen off of a cliff, but look around the market has actually reset.

As I mentioned, assets that we’re seeing are selling 30% below where they did just after COVID jobs and population growth and places like. The Carolinas, Texas and Arizona, they look fantastic. And guess what? Interest rates they’re falling. They are. I mean, um, by the time, uh, this comes out, you’ll probably have your, um, your next announcement this December announcement for the rate cut.

And you know, some people are like, well, I don’t know about the bond markets and how are they gonna follow guess? They stopped quantitative tightening last week. And guess what happens after that? Well, they start quantitative easing again. Go, you know, basically you’ve got the, uh, you’re gonna have government buying of bonds and that is going to, uh, drive yields down there as well.

That’s my belief. And every macro indicator you can name is pointing in that direction. Um, so in my opinion. Again, it is my opinion. I do believe that a setup, this is a one of the best setups in 15 years, right? Since the whole 2008, 2009 debacle and everybody got crushed and across the board. I mean, this is the best setup for multifamily real estate since then.

So of course. Few people are paying attention. Why? Because markets that are bottomed out are not sexy. And if it’s not frothy, it’s not newsworthy. No one’s paying attention. You’re paying attention to things like shiny things like gold even. It’s funny to say that because gold for so many years was just sitting there doing nothing, and that just exploded.

Now everybody’s paying attention to gold, right? Um, it’s human nature in a nutshell. When assets are expensive. Uh, and, and risk is actually rising. People feel brave and, and when assets are attractively priced in, future returns look great. People are scared. What is behind the fact that that market is 30%, uh, discounted from just a few years ago?

You know, and you look at something that’s up 50%, 60%, and you’re like, eh, I want a little bit of that, right? So there’s lots of things that at play when it comes to our psychology. You know, there’s things called recency bias, assuming whatever just happened will keep happening. Well, that’s what I’m talking about with frothy markets and stuff.

There’s loss aversion. We fear losing a buck more than we enjoy making one. I think that’s, uh, very reasonable thing to do. I have, uh, I’m there myself, and then there’s herd behavior. We’d rather be wrong with the crowd than right by ourselves. And of course. There’s confirmation bias and that’s where people seek out whatever headlines validate the emotions they’re already feeling.

It’s not logical. It’s not logical at all, but it is human and that’s why this week’s guest on Wealth Farm Meal podcast is, uh, going to be interesting for you to listen to. He’s one of the leading experts in the world. On investor psychology, someone who can explain with real data why even intelligent investors consistently jump into markets, laid bailout early, misread risk, and miss the best opportunities, uh, and also kind of why and how the whole system is ultimately sort of kind of rigged against us, the retail investor.

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Welcome back to the show everyone. Today. My guest on Wealth Formula podcast is Terrance Odean. He’s uh, Rudd Family Foundation, professor and former chair of the finance group at the Haas School of Business, university of California Berkeley. He’s a pioneer of behavioral finance, uh, famous for research showing how human psychology not rational markets, often drive individual investors poor performance.

Uh, welcome to the show. How are you? I’m good, thank you. Great. Well, you know, let’s kind of just jump right into it, if you don’t mind. Um, let’s start at the core. What do you mean when you say investors aren’t rational? Exactly. And, and specifically how? Has Wall Street built an entire system that quietly profits from that irrationality?

Well, I think in my earlier papers I used the word rationality, and I don’t use it now because I think it’s confusing. So economists, uh. Have a very specific definition of rationality built on, sort of on these axioms of rational decision making that Dr. Spock would use. And sometimes the behavior that looks rational to an economist, most of us would shake our heads and say, what’s wrong with that guy?

So I, but I do think it’s fair to say that. Human beings often make decisions, uh, in ways that are biased, in ways that, um, don’t properly assess probabilities or are influenced in predictable, but not necessarily beneficial, um, ways from, uh, emo by emotions. So most of the work I’ve done has taken a look at, uh.

Biases, ways of making decisions that, that my mentor and his, uh, research partner, Danny Kaman, I studied with and his research partner, Amos Diversity, they documented in the seventies and eighties. For example. Uh, people estimate probabilities based on how easily examples come to mind and sometimes.

Sometimes that can be a bit biased. Like if I were to ask you to name five companies that went public and were wildly successful, you could rattle ’em off in no time. And then if I asked you to name five companies that went public and subsequently failed and became bankrupt, and were delisted. You might have a harder time, even though we know that more companies fail than end up like, uh, Google and Microsoft and Amazon.

So if you are an individual investor thinking of buying an IPO and asking yourself, well, how likely is this thing to be successful? And you started judging the probability by the examples that came to mind, you would overestimate the probability of success. So then that would be one example. I also look at overconfidence.

There’s a strong human tendency. It doesn’t affect everyone equally, but to have these self-serving biases where we think we’re a little better than we are, we think, uh, we have more ability than we have, and these are not entirely bad things. It’s easier to get up in the morning if you think you’re a good person with a little bit more ability than you have.

But for an individual investor that can lead the investor to make trades that maybe they shouldn’t be making, maybe the individual investor says, oh, I have a great idea. And then doesn’t stop to say, but my idea is based on very public information that the Wall Street professionals had way before I had that information.

So, uh, that overconfidence could lead to overtrading. Uh. These are the type of things I’ve, I’ve been interested in.

When you talk about Wall Street sort of building an entire system that kind of quietly profits from that irrationality, can you tell us a little bit about that?

Well, I don’t study so much how Wall Street exploits the biases, though obviously that happens.

I do have a recent, uh, paper. Wrote with some co-authors about traders on Robinhood, and we look at the Robinhood environment. This was a few years ago, and the environment was quite simple, so they listed a lot less information about companies than some other brokerage firms. So that would make a novice investor perhaps feel like, oh, this isn’t so complicated.

It was really easy to trade. I mean, I was sort of shocked. I opened up an account because I wanted to understand the thing I was studying, uh, through data, and it took a couple minutes to open up an account. I transferred some money in from my bank account. I thought, well, in a few days when the transfer clears, I’ll be able to trade.

But no, I was able to trade immediately. This was still back in the days of digital confetti. I placed a trade and the digital confetti sort of rained on my, my phone screen. It was like, yes, celebrate. So I think that Robinhood is not alone in this, but they. They encourage lot trading. I mean, they make money through trading, so they make it easier.

Uh, they make it feel like fun people. Uh, there’s research in psychology that shows that people are more spontaneous and less critical decision makers when they’re feeling happy and in a good mood. Uh, so I think there’s a lot of encouraging. Retail investors to trade very actively. And that of course is where a lot of that money is made.

Yeah. It’s

almost sort of like a gamification of the whole thing, right?

Well, that, that exactly. I mean, that’s the term that, that we use and others use. It was like a gamification of trading and as you

know, like, you know, games can be addicting. So if, if, because

games can be a big thing, right? And

then, uh, the idea being that, you know, if you can make something, you know, sort of fun.

And in, in games, you win and lose. And people sometimes expect that too. Right? But then now they’re dealing with their own, their own money. So it can get outta hand potentially.

Yeah. And I draw, so I teach personal finance. I, you know, I’ve, I just finished teaching 600 students. I’ve got three more, 300 more to go today.

And we make a distinction, you know, I, I say. We are mostly focused in this course about things like saving for retirement, and we encourage students to buy and hold well diversified low fee funds, uh, such as target date funds. They’re not the only option, but that’s one that, that we discuss at length. And then I say, and if you find.

Trading stocks to be say, as entertaining as instead taking vacation to Hawaii. Or, you know what? Whatever you might spend your fun money on and you can afford that, that’s fine. But segregate that money and segregate it in your mind so that when you lose money in your play account and make sure that it’s money you can afford to lose, you don’t, you’re not tempted to like start messing around with your retirement money.

Um. There have been some, in my opinion, very disappointing changes in recent years on, uh, on Robinhood and uh, and at other brokerage firms encouraging a lot more trading and options and futures and encouraging trading ENC cryptocurrency. And currently you can. Place. They don’t call it this, but you can play sports bets on, on Robinhood, on your, on your, you can open up your, uh, Robinhood app.

Buy, buy and sell stocks. Buy and sell options, buy and sell crypto, and play sports bets. And you know, to me that’s not investing.

It’s interesting because again, now you’re placing it in a certain part of your brain, right? And it’s very intentional, and presumably it’s very intentional if you’re, if you’re thinking about trying to design something that made people want to come back, you know, you’re talking about sports betting.

I mean, there’s something that’s clearly addictive as well. I mean, and, um, so that, that again, is a, uh, is interesting how. These platforms are using psychology in that regard. Um, sticking with the psychology concept, um, I think you’ve shown that retail investors consistently underperform in general. Is that right?

And, and if that’s true, is that because, you know, why is that, is that because the system just kind of designed to trigger the worst parts of human psychology and walking to traps or what?

I don’t think it’s through system design so much as. Human design. So for example, uh, most investors buy the stock or the asset or the mutual fund, uh, that they wish they bought last year, sometimes last week.

But you know, usually, you know, it’s what did well last year and in a lot of realms of human endeavor. There’s a great deal of persistence in performance. I don’t know if you are a runner, but if you say are a runner and you went out to a track and you joined me and the class I just taught, you know, 250, 300 students and we all ran a mile.

Well, I can tell you I would not be anywhere near the front, but if you ranked everyone. Then you came back a year later and had that same race, there’d be a huge correlation in the outcomes. You know, might not have the same person, number one, number two, number three, but whoever was number one this year would probably be in the top 10 or 20 next year unless they were injured.

So basically what we’re talking about is, you know, cognitive traps. Right. I mean, I think that’s a great example. You know, in, in real life, winners often keep winning, right? You have, you know, professional sports, you have great teams. Well, they’ll probably be pretty good next year too, and maybe they won’t win the Super Bowl, but they’re not gonna be last place.

And you know, what are some of the other, I guess, cognitive traps that, that people fall into that, that I think that are worth mentioning? Because I think, again, that’s a very. Useful one for people to just step back and think, is that the way? I think it probably is. I mean, you know, uh, such and such stock did so great last year.

I wish I had invested. I’ll invest this year. They’ll probably win again. You know?

Yeah. So let me say one more thing about that, and this is where the horizon speeds up. And one change that we’ve had over the last decades is. The horizons have gotten shorter and shorter. So suppose back in the 1970s, there was news.

You don’t live in New York. You read about it in your local paper. A day later, you think you wanna trade. You call your broker, you have to talk to him. Maybe he doesn’t answer. He calls you back a little later, the market’s closed. You get your trade in the next day. Things, you know, maybe it took a day, maybe it took two days.

Now things are boom, boom, boom, boom, boom. Uh, so now maybe if you’re an active investor on a site like Robinhood, you’re not thinking what went up last year? It’s what’s going up today. And Robinhood shows you that they have a list of the big movers. And we did a study, uh, where we looked at. The stocks that Robinhood investors piled into on a particular day, we called it herding, the ones they herded into.

And not surprisingly, those stocks went up quite a bit. And then over the next few days they came down, but not back down to where they started. They came down a bit, but when we looked at the timing. It looked like the, on average, the Robinhood investors were losing money because they tended to be the people buying at the top.

So this is where the psychology starts to interact with market dynamics. And you have some winners. Clearly, the people who bought early made money, you know, they, they bought early, they went up. They probably, they probably got out at a good price, but a lot of the investors. We’re doing a lot of buying near the top.

Those are kinda like mini bubbles. Uh, you know, small reflections of what we saw in 1999 and 2000 when the least actor, you know, with some of the late comers to the market were people who were not sophisticated, at least in their understanding of market pricing and things. And they bought, you know, people who bought in January of 2000.

It didn’t do so well when the market crashed in March. So that’s just a case where the bias can interact with markets in a way that doesn’t serve investors well. Another thing that we see influencing, uh, retail investor behavior a lot is limited attention. And Brad Barber and I wrote a paper where we, we asked the question, how do retail investors.

Choose the stocks that they buy. And, you know, we realized the average investor isn’t systematically sorting through three or 4,000 choices, uh, reading annual, annual, or quarterly reports. Uh, the average investor is waiting for the stock to catch his or her attention, and then saying, do I like it or do I not like it?

On the sell side, things are different because most retail investors fortunately only sell stocks that they already own, uh, because it can be very risky to start shorting stocks. So attention matters less because if you already own the stock, you’re probably paying some attention to it. And if a stock hits the news and you look at it and you say, oh, well that’s really not, I think people are overly optimistic about it if you don’t own it.

You know, you know you don’t sell it. You’re only gonna sell it if you own it. So our hypothesis was that attention would affect the order imbalance, the buys, minus the cells. Retail investors in such a way is that retail investors would be on the buy side of the market for attention grabbing stocks, and we found that was overwhelmingly true.

We used a variety of measures of attention and for everyone. You see the retail investors buying the stocks that catch their attention. Then in another paper, we take a look at what that means for returns, and we find that the combination of high trading volume. Retail investors being heavily on the buy side of the market leads to investor losses, significant losses.

So you’ve got, you’ve got basically this smart bunny selling to, to retail investors is effectively what’s happening there. Right. So, uh, let’s talk about, um, the disposition effect. Uh, why do investors claim to losers and sell winners?

Well, how do you feel when you sell something for a loss?

Well, yeah. You don’t like it, right?

You just hope it could,

yeah,

I’ve done that. I’ve done that recently. It’s hard to

say to yourself, Hey, until I sell it, it’s not really a loss. We’ll call it a paper loss. You know, I’ve had people say this to me. I had a broker say this to me, so before I became an academic, I traded stocks a little bit. Not a lot of money.

Fairly active. I didn’t, you know, I just did what my friends were doing. I, as so many people do, and at that time, that was before online trading, and I had a broker and he would talk like that. He’d say, you know, I, I, he’d have recommended something and it was down, and he’d say, oh, well, when the market figures out what we know, this thing’s gonna come bouncing back.

I remember being on the phone one day and thinking. I don’t know anything. I’m getting the impression. You may know a little less, but, uh, you know, it’s, but it’s the language. It’s like it doesn’t count till you sell it. So what do people do? They hold onto their losers because selling them makes you feel bad.

They sell their winners because you feel a little better when you sell your winners. I did a study of that as basically as part of my dissertation. No. 20 some years ago, and I found a very strong effect for retail investors here in the us. I’ve done studies, I did a study later in with Taiwanese investors.

Other people have studied in, uh, dozens of countries. You just find the same thing over and over again. You actually find the same effect for institutional investors, but it’s much less pronounced. So institutional investors, they’ve come to realize that, that we have this emotional tendency to hold onto our losers.

And so, you know, the companies will establish protocols to try to push back on that tendency. You know, you might have a, a rule that is, at least for new traders, if you’ve lost 10%, you gotta sell or something like that, so that people don’t just clinging to those losses.

And on the other side there’s the, the selling the winners thing, right?

I think there’s some sort of, um, I don’t know if it was Warren Buffet or somebody had an interesting analogy about going into your garden and, and basically, and just growing the weeds and pulling out the flowers, you know, effectively doing the opposite of what you should be doing. Right.

In academic finance, our mathematical models often treat buying and selling as symmetrical.

You just stick a minus sign in front of the buying to make it selling. For human beings, it’s very different. Selling is mostly backward looking. You know, how am I gonna feel if I sell this, you know, because it’s been down. I bought, did I make money? Did I lose money? Even, even the more. Uh, sophisticated investors are asking themselves about is this the right time to take a tax loss?

So, you know, they may be thinking about differently, but they’re still largely backward looking. Buying is all about what you hope is gonna happen. Now, you might be basing your beliefs about the future on what’s happened in the past, but your orientation is forward. The selling, your orientation seems to be backwards, and you find that institutional investors, I’ve seen, uh, probably not academic, but I, I’ve seen some studies of this that suggest that institutional investors, uh, especially like money manager, uh, money mutual fund managers do better on their buying than on their selling.

In other words, they tend to buy stocks that do well, but. They often sell stocks that subsequently do quite well because when they’re doing the analysis to sell, many of them don’t say, if I didn’t own this, would I buy it? They just say, oh, well I need to raise some money for some great idea I have. And so, uh, I think the way I’ll raise it is by selling one of my winners.

Yeah. Then you feel like you actually won. Yep. Right. Um. How does this work? I mean, you mentioned a little bit about IPOs, but when people go into private deals, real estate, same biases,

same biases, uh, more complex markets.

Yeah.

So let me talk one aspect of, of of, say real estate. Mm-hmm. People talk, you’ll often hear, like in in books, they say that riskier investments on average earn more money.

I actually don’t think that’s true. I can’t prove it, but I don’t think it’s true. What I do think is true is that investments that tend to earn more money tend to be riskier, but there are a lot of risky investments that are very unlikely to earn you much. And the reason for that is in most markets, if something is underpriced, people are gonna buy it and move the price up.

If something is overpriced, there’s not much you can do about it. So in the stock market there, there is short selling and we see a lot written about it. And as I say, I don’t recommend it for retail investors, but short sellers serve a purpose in the market. When a company stock gets too high or when there’s evidence of.

Maybe fraud or at least, um, uh, a little bit of misstating of, of how rosy the prospects are. Short sellers come in and they kind of put downward pressure on the price, so there’s a little bit of equilibrating. You know, the buyers tend to have more market power, but there’s something pushing down when you think a stock is overvalued in real estate.

Lot of real estate. There is nothing like that. Uh, for example, say there’s a house for sale near the beach in Key West, and let’s say I, I live out here in California and I think, whoa, you know, this place could be underwater in 30 years. I wouldn’t think, I’d never dream of spending $2 million for that house, but the person who buys it, the person selling it, probably spent a lot of money and, and.

Isn’t worried about, uh, climate change, the person buying it, perhaps not worried. What I think doesn’t affect that cost at all. The cost of that house will only start to be affected by issues like climate change. When banks and insurance companies start coming in and saying, we want more to insure this house.

Or, you know, we’re going to, you have to have a bigger down payment or something like that. So there are a lot of markets where. Things can get priced pretty high. And if your opinion is those prices are too high, there’s really not much for you to do about it. I’m not a big fan of cryptocurrency, but I’m not gonna go and start shorting cryptocurrencies.

You know, my, uh, my capacity for losses is not that, not that great, and I don’t really know, I mean. I don’t know what the right value should be, but my point is whatever I think doesn’t really affect those prices. So there are a lot of markets and those markets create opportunities for losing money because it’s not that the stock market is, in my opinion, efficiently priced.

There are mispricings. But they’re probably not as dramatic as they are. When you start going into things like private equity, going into places where there’s less information, less regulation, and less, you know, the market forces that might keep prices reasonable are less strong.

Yeah. You know, going back to the whole Robinhood gamification thing, one thing I wanted to ask you is if you were designing a platform.

Did that help to people to protect themselves? What, what would that look like?

Uh, I don’t know. vanguard.com? Yeah. I, there, so I, I’d say this my, so, you know, Robinhood, um, I think their mission statement was something like to democratize investing for all. And in my opinion, that was done, that was done, uh, done by Jack Bogle.

Jack Bogle founded Vanguard. What did Vanguard do? Vanguard made it really inexpensive, like brought the fees way down on mutual funds and made it easy to buy a well diversified portfolio with low fees and buy and hold it, and that democratized investing for all. Now, Robinhood did do something I, I am not trying to say Ro Robinhood has a huge effect in markets.

Mm-hmm. It made it really cheap. To actively trade. Uh, so it kind of democratized speculation for, all

right. So one last question for you. So, you know, I know you teach this stuff and it’s not a simple one question thing, but you know, if you think about like the psychological edge that investors can actively cultivate and to think about.

Um, what would that be? Just maybe one or two things that you, you’d think, like, you know, work on this psychologically. How, how would you, how would you suggest

When I took Danny Kahneman’s undergrad class conman, I, I remember he stood there, he said, Amos and I have largely so discovered all these biases, and I fall prey to every one of them, every day.

So it’s not as simple as saying, oh, I know there’s this bias. My recommendation would be when it comes to investing, the vast, vast majority of people should be taking a buy and hold approach with a lot of diversification and paying attention to fees, and those who want to trade actively for entertainment or.

They enjoy doing it. They, again, they should segregate the money that they have for retirement from the money they’re playing with. And then if they want to be smart, they can start saying, okay, before I impulsively do something, ask myself, why is the person on the other side of this trade selling to me when I’m buying?

And who do I think that person is? Because in the US the person or the computer on the other side of the trade is. Probably owned by a large company or working for a large company that makes lots of profits every year. And so while you might make money on any given trade, people like you on average are losing and a little bit of, uh, acknowledgement of that.

Uh, another thing to do is before you tell yourself all the reasons to do a trade, spend a little time thinking about reasons you might not want to do that trade. You know, this is, I, this is true for so many parts of life. My students come in, PhD students come in with an idea for, you know, I’m gonna prove this and here’s all the evidence in favor of it.

And I say, okay, then I’ll give a little bit of thought as to how you could try to disprove what you believe. And if you really can’t disprove it, maybe it’s right, but you know, before you say, oh, I know this thing is going up, uh, ask yourself, well, why might it? Go down

right. Sometimes you only get that, uh, through experience in, in the sense of making sure you ask the questions.

You know, as Mike Tyson said, everybody has a plan until you get punched in the until Yeah, punched in the nose. So, yeah, that’s a good line. So sometimes it does take a little bit of, uh. It does take, uh, uh, you know, some scar tissue to get into that mentality. But

yeah, the one thing I say about this, I hope that most young people who are great choose to learn from their own experience rather than the experience of others do it with money they can afford to lose.

Yeah, absolutely. Um, uh, Terrance, where where can we learn, where can people learn more about some of these topics that you, um, that you study and write about?

Huh, well, some of what I’m talking about, uh, I, I’ve got, I made like 50 videos on issues around investing and personal finance. Uh, they’re on YouTube.

I, I think my site is called Making Smart Financial Decisions. Okay, great. Um, yeah, so I talk about investing, I talk about my research on investing, and then I talk also about some other, uh, finance topics I talk about, you know, like questions you should ask a financial advisor if you choose to have a financial advisor.

Thank you so much for being on the show today. Appreciate it.

Thank you. I really appreciate being invited. Thank you.

You make a lot of money, but are still worried about retirement. Maybe you didn’t start earning until your thirties. Now you’re trying to catch up. Meanwhile, you’ve got a mortgage private school to pay for and you feel like you’re getting further and further behind.

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The concepts here are used by some of the wealthiest families in the world, and there’s no reason why they can’t be used by you. Check it out for yourself by going to wealthformulabanking.com. Welcome back to the show everyone. Hope you enjoyed it. Yeah. When you listen to that show, when you listen to that conversation, how many times did you say, yeah, I hate do that.

I’ve done that before. I’m, uh, I’m no different. I definitely am no different. There’s a lot of, uh, there’s a lot of bad decisions in the past for sure, but all you can do is you can learn from those and you continue to move forward. You try to look at what reality is, what the real data is, and make the best decisions.

That’s what investing is all about. Anyway, that’s it for me. This week on Wealth Formula Podcast. This is Buck Joffrey signing off. If you wanna learn more, you can now get free access to our in-depth personal finance course featuring industry leaders like Tom Wheel Wright and Ken McElroy. Visit wealthformularoadmap.com.