Tucked away within the credentials section of my Posey Capital biography is the fact that my academic career includes a bachelor’s degree in psychology. I’ve always been fascinated by the workings of the human mind. Plus, recognizing the tricks our minds play on us helps me advise clients on how to make more rational decisions about their money and their lives.
How do you unwind after a busy day? Personally, I’m a sucker for Science Daily, which I scan regularly for new insights that might (or might not) apply to financial management. Let me share with you a few of my favorite recent posts.
IMPULSE PURCHASES: NOT JUST FOR NEUROTICS ANYMORE (Science Daily, Oct. 20, 2009)
Synopsis: Scientific research says that the more you believe in social equality, the more likely you are to be an impulse buyer.
Investment lesson: If you feel you may be prone to impulse spending, especially if it tends to be beyond your means, it can be a good idea to work with your advisor to develop your ability to assess short-term spending wants versus long-term spending needs.
ARE YOU A GAMBLER? (Science Daily, Jan. 13, 2010)
Synopsis: There is evidence that genetics play a role in our differing attitudes about risk-taking. In a recent study, people with a particular gene were more inclined to take “long-shot” risks (such as playing the lottery) and less inclined to buy insurance.
Investment lesson: Understanding risk and reward in capital markets is key to successful investing, so increasing your familiarity with how you personally feel about risk-taking — and why — might help you make better investment decisions for yourself.
WISHING DOESN’T MAKE IT SO (Science Daily, Jan. 16, 2010)
Synopsis: This study concludes that people think desirable objects are physically closer than they actually are.
Investment lesson: Avoid falling into the trap of assuming a particular outcome is more likely just because you wish it were so. What do you think the stock market will return over the next 5, 10, 20 years? Maybe 10–12 percent per year? Think again. I'll address the subject of more realistic return expectations in my next blog.
