{"id":19780,"date":"2023-05-04T15:18:41","date_gmt":"2023-05-04T19:18:41","guid":{"rendered":"https:\/\/azzadasset.com\/?p=19780"},"modified":"2025-03-14T19:18:08","modified_gmt":"2025-03-14T23:18:08","slug":"behavioral-finance-why-investors-make-the-decisions-they-do","status":"publish","type":"post","link":"https:\/\/intelliserver.net\/wordpress\/blog\/behavioral-finance-why-investors-make-the-decisions-they-do\/","title":{"rendered":"Behavioral Finance: Why investors make the decisions they do"},"content":{"rendered":"\n<p><strong><em>\u201cThe investor\u2019s chief problem \u2013 and even his worst enemy \u2013 is likely to be himself.\u201d<\/em><\/strong> \u2014 Benjamin Graham (1894\u20131976)<\/p>\n\n\n\n<p>Legendary economist and investor Benjamin Graham made his timeless observation decades ago, and yet it reflects our enduring belief: <strong><em>Your own behavioral biases are often the greatest threat to your financial well-being.<\/em><\/strong> As investors, we leap before we look. We stay when we should go. We cringe at the very risks that are expected to generate our greatest rewards. All the while, we rush into nearly every move, only to fret and regret them long after the deed is done.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-do-we-have-behavioral-biases\">Why Do We Have Behavioral Biases?<\/h2>\n\n\n\n<p>Most of the behavioral biases that influence your investment decisions come from myriad mental shortcuts we depend on to think more efficiently and act more effectively in our busy lives.<\/p>\n\n\n\n<p>Usually (but not always!) these short-cuts work well for us. They can be powerful allies when we encounter physical threats that demand reflexive reaction, or even when we\u2019re simply trying to stay afloat in the rushing roar of deliberations and decisions we face every day. But those same survival-driven instincts that are otherwise so helpful can turn deadly in investing. They overlap with one another, gang up on us, confuse us and contribute to multiple levels of damage done.<\/p>\n\n\n\n<p>Friend or foe, behavioral biases are a formidable force. Even once you know they\u2019re there, you\u2019ll probably still experience them. It\u2019s what your brain does with the chemically induced instincts that fire off in your head long before your higher functions kick in. They trick us into wallowing in financially pathological behavior, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Counterproductive trading<\/strong> \u2013 incurring more trading expenses than are necessary, buying when prices are high and selling when they\u2019re low.<\/li>\n\n\n\n<li><strong>Excessive risk-taking <\/strong>\u2013 rejecting the \u201crisk insurance\u201d that global diversification provides, instead over-concentrating in recent winners and abandoning recent losers.<\/li>\n\n\n\n<li><strong>Favoring emotions over evidence<\/strong> \u2013 disregarding decades of evidence-based advice on investment best practices.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What Can We Do About Them?<\/h2>\n\n\n\n<p>Here are a couple of ways you can defend against the behaviorally biased enemy within:<\/p>\n\n\n\n<p><strong>Anchor your investing in a solid plan<\/strong> \u2013 By anchoring your trading activities in a carefully constructed plan (with predetermined asset allocations that reflect your personal goals and risk tolerances), you\u2019ll stand a much better chance of overcoming the bias-driven distractions that rock your resolve along the way.<\/p>\n\n\n\n<p><strong>Don\u2019t go it alone<\/strong> \u2013 Just as you can\u2019t see your face without the benefit of a mirror, your brain has a difficult time \u201cseeing\u201d its own biases. Having an objective advisor \u2013 well-versed in behavioral finance, dedicated to serving your highest financial interests, and unafraid to show you what you cannot see for yourself \u2013 is among your strongest defenses against all of the biases we\u2019ll present throughout the rest of this series.<\/p>\n\n\n\n<p>As you learn and explore, we hope you\u2019ll discover: You may be unable to prevent your behavioral biases from staging attacks on your financial resolve. But, forewarned is forearmed. You stand a much better chance of thwarting them once you know they\u2019re there.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cThe investor\u2019s chief problem \u2013 and even his worst enemy \u2013 is likely to be himself.\u201d \u2014 Benjamin Graham (1894\u20131976) Legendary economist and investor Benjamin Graham made his timeless observation decades ago, and yet it reflects our enduring belief: Your own behavioral biases are often the greatest threat to your financial well-being. As investors, we [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":19782,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9,733],"tags":[871],"class_list":["post-19780","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","category-financial-planning","tag-behavioral-finance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Behavioral Finance: Why investors make the decisions they do - Azzad Asset Management<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Behavioral Finance: Why investors make the decisions they do - Azzad Asset Management\" \/>\n<meta property=\"og:description\" content=\"\u201cThe investor\u2019s chief problem \u2013 and even his worst enemy \u2013 is likely to be himself.\u201d \u2014 Benjamin Graham (1894\u20131976) Legendary economist and investor Benjamin Graham made his timeless observation decades ago, and yet it reflects our enduring belief: Your own behavioral biases are often the greatest threat to your financial well-being. 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