Investor Cognitive Biases: Scarcity Error

Continuing the series on common cognitive biases that impact investors. In case you missed it, read the introduction and first in the series: neglect of probability here What is scarce is valuable – Scarcity Error In a research project in 1975, Prof. Stephen Worchel split participants into two groups. The first group received an entire box of cookies and the second group just two to taste. Both groups were then asked to rate the quality of the cookies. This was repeated several times. The 2nd group rated the quality of the cookies much higher than the other. Gallery owners place

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Understanding cognitive bias or how to not let your brain sabotage you

Investing can be hard. Finding the right companies. Evaluating their long-term competitiveness. Gauging “market sentiment” and it’s position on the arc from ‘Greed’ to ‘Fear’. Choosing to enter / to exit / to just stay put. Ken Heebner, who ran CGM funds from 1968 to 2016, was a legendary fund manager known for taking gutsy contrarian calls. For over a decade, his fund, CGM Focus returned 18.4% annually, beating the nearest comparable fund by 3.4%. Exceptional by any means. An analysis of investor returns in the fund, dollar-weighted returns taking into account capital flowing in and out, showed the typical

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