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.

You probably pay too much attention to things that matter too little.  We all have biases, which is okay, but they have to be recognized. We all have a tendency to deal  with certain facts, figures, events too heavily or we anchor it and make decisons based on the event. That is normal, the issue is whether the event was a one time event or does it happens regularly? For example in 1987 stock prices fell, but the rest of the 80s and 90s stocks were good investment choices.

Your confidence is often misplaced. We all believe we are smarter or over confident in whatever we do. Occassionally we need to be put to the test and determine if it is true or not. The classic case is a particular investment strategy, time has shown investing in the index or a portfolio of dividend producing stocks is the best strategy, but everyone has to try with the secret to beating the markets theory first, just try with a limited amount first.

It is hard to admit mistakes. Part of the answer is pride, but given the emphasis on success and not necessarily learning from failure, in general, we rarely admit we were wrong. It is good to have a sounding board and a variety of sources of information.

You can know too much. Knowledge is power, but what knowledge is important? If you bought investments that did not need to be checked up on every day or every month, would you be better off? Likely the answer is yes.

Linking to dividend producing stocks, some of the answers are with dividend producing stocks as this is a proven method to having consistent gains over the long term. The wonderful thing about the markets is there are many strategies out there. Focusing on profitable companies or good cash flow, reasonably stable markets, high barrier to entry, increasing dividends in the long run you will be better off.

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