In the book Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich, Simon & Schuster, NY, 1999, offers ideas in the Behavioral Economics format. The authors have a few principles to consider and lessons to be learnt.

Money that’s spent is money that does not matter or the sunk cost fallacy. We all buy things which is good, when do you spend money to improve on the purchase? A great example is the computer. You have owned it for a few years (have sunk money into it) and it needs upgrades. how much do you spend or when do you consider buying new? If a comparable computer was offered to you needing the same repairs, would you want it? Once in a while the answer is yes, but realistically many times the answer is no, are there alternatives?

It is all in the way you look at it or how do you frame decisions? The same set of options to buy or sell might lead to a different decision if you view it as protecting a gain or avoiding a loss. For example if you are considering buy a stock, after going through the pros and cons, ask yourself would anything change if I already owned it? Sometimes that helps figure out what variables you either want or do not want.

All numbers count, even it you do not like to count them. The classic case is buying a vehicle. You have figured out that you can afford the payments which is great, the open road and freedom is waiting for you. The second part of the equation is the operating or running the car. Fuel, check ups, maintenance, repairs, parking and insurance are some of costs to be factored in. Many purchases have fees somewhere along the line that need to be considered.

Linking to dividend producing stocks, how you make your decisions can help you make  better decisions. With dividend stocks you can focus on the dividend first – is it the yield you are looking for? is the dividend growing? how many years has the company paid? then ask about the stock price and given it is to be a long term holding, is it a good entry point?

There are more questions than answers, till the next time – to raising questions