An investment advisor reveals the 7 traps that lead to bad financial decisions

Ken Weber has seen clients make all kinds of stupid mistakes in his 30-year career as an investment advisor.

That’s why he wrote “Dear Investor, What the HELL are You Doing?: Smart and Easy Ways to Fix the Mistakes You Make With Your Money.”

In the book, he lists the seven most common errors that most investors make when they let their emotions and personal biases get in the way.

How many of these are you guilty of?

1. Giving in to fear and greed

Weber explains, “Emotions cause you to flee a bear market and plunge head first into a bull market, acting directly counter to the investment adage, ‘buy low, sell high.'”

2. Being overconfident

People with an inflated sense of their ability to make smart investments often take shortcuts and don’t fully think decisions through.

3. Looking backwards, not forwards

Weber says that the investors he meets often have a bad habit of dwelling on the past, and talking about market developments as if it was obvious what was going to happen. The reality is that it’s never obvious, and hindsight is 20/20 for everyone.

4. Relying on data mining

“Data mining” means studying historical market patterns and using them to try and predict the future. As seasoned investors know, making any kind of prediction is impossible.

5. Anchoring

“That’s the practice of mentally locking in a stock that has become irrelevant,” Weber writes. “It doesn’t matter that a stock you bought at $US30 is now trading at $US10. It’s no longer a $US30 stock. Embrace that reality and realign your approach accordingly.”

6. Doing mental accounting

Investors often fool themselves into thinking that they’re doing better than they are. It’s human nature. So it’s important to keep track of how you’re doing on paper, not in your head.

7. Sticking with the status quo

“We have a natural aversion to change that can get in the way of successful investing,” Weber writes. In order to be successful, you need to be able to recognise when things aren’t working, and adapt accordingly.

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