Do you remember back in the late 1990s when the stock market was soaring and technology stocks reached astronomical valuations? Or how about the mid-2000s when real estate prices soared and people were making money flipping houses? Those are just a couple examples of how emotions and psychology led people to bid up prices way beyond a reasonable value.
In recent years, a new field of study called "behavioral finance" has arisen to study how psychology plays an important role in how we make investment decisions. In an ideal world, we would all make calm, cool, rational decisions about our money. But in reality, our "humanness" sometimes gets the best of us and we make behavioral mistakes.
The best investors are not only good at math, they also understand the "psychology" of investing and are able to manage the emotions and biases that affect all of us.
In today's episode, we talk about several common behavioral biases and discuss how you can overcome them. It's an important conversation that could help you avoid making behavioral mistakes in the heat of the moment.
