As pubs begin to re-open, so too do bar-side questions such as, ‘what do you think of this financial opportunity?” and other such get rich quick conversations.
Most recently, the tail end of crypto investors have been arriving and the lack of financial knowledge, or life experience with those investors, is quite worrying. Most bubbles grab the least financially sophisticated right at the end, bringing them down with the ship.
There are many conversations I’ve heard at the bar regarding investments A or B, only for the conversation to end when the facts are checked. There are many who boast of successes but when challenged they have no answer. I often ask “what did your accountant think of those gains on crypto” or whatever opportunity they saw. Invariably they neither had an accountant, or the gain in the first place, and questioning for detail on price timings normally means they scoot to the toilet and body swerve on return.
I have yet to have a conversation with anyone who boasted about how much they had lost! They just don’t talk about it.
Don’t be suckered by FOMO
This feeds right into FOMO (Fear Of Missing Out), but, it is a crucial skill in decision-making to think ahead in terms of either making a bad decision or missing out on making a good one. The book Thinking Fast and Slow, has many great points that any would-be investor should consider before investing.
Understand what you might be investing into; ask for the risk and reward to be explained to you fully and then test it. Finally, run it by others who will similarly test you on your understanding of it – if you can’t articulate it, don’t be afraid of missing out. In the long run, you won’t.
There are many cognitive biases which allow us to be sucked in or alternatively ignore an obvious opportunity.
We start with a belief and we believe it. We then look for data which proves that belief, both positively or negatively, and are blinded to the truth. Referendums prove that either way.
Cognitively we are drawn to more bizarre, shocking and controversial ideas, whereas your average run-of-the-mill discussion doesn’t spark the same intrigue.
Perhaps the greatest risk, however, is projecting our current mindset and all its assumptions into the future. If we are negative about the world, there’s no point in investing for five years from now and vice versa.
Neither are correct.
Get rich quick and the lure of simple choices
At the tender age of 16, I just wanted to play sport. The thought of sitting indoors learning sections of William Shakespeare was beyond traumatising. He had a great point though: “There is nothing either good or bad, but thinking makes it so”.
Complex, ambiguous choices are generally where the opportunity lies, but these are ignored for simple choices.
If you receive a nice online offer, remember con artists do not come with a business card and they aren’t regulated by the ‘con artist regulatory authority’. Also remember, good con artists are successful for a reason.
For every winner in a transaction there has to be a loser. Think about whether you want that to be you or not. Selling a share, or a car for more than it’s worth means there is a buyer losing out and vice versa.
Do not get anchored to a previous price. It will have nothing to do with where that price is going. I remember a Far Eastern fund which fell 90 per cent three times on the trot. Many think if it’s down 90 per cent it can’t go any further and strangely we are of the belief that it only has another 10 per cent to go: not so. In 2000, I fully realised, ‘what you can get cheap, you can get a whole lot cheaper’.
Just because a previous price was higher, doesn’t mean you are getting a discount. Markets are pretty efficient, and price themselves ahead, so ask why you might know more than the market.
Finally, cognitively, we all edit and reinforce memories after the fact. As the song Wear Sunscreen tells us: “Don’t congratulate yourself or berate yourself either, your choices are half chance, so are everybody else’s.”
But do take advice when opportunity presents.
Peter McGahan writes a weekly column for 50connect on financial issue for older people, check out our finance channel.Tags: Peter McGahan Last modified: September 3, 2021