“Investing is the art of decision making.” – Anonymous

So it’s not by Anonymous. I wrote that five seconds ago. By saying it was by Anonymous your brain quickly starting trying to put some old, famous person to the quote. That’s what our brains do. They are constantly trying to make sense of the world.

The problem is that our brains are ill-suited to investing. I recently came across a handful of posts that touch on the topic of decision making. What they all show, in one way or another, the challenges we have as decision makers, like:

The challenge isn’t finding new ways in which our brains work against us as investors. The challenge is putting those observations into action. Saying that our decision making powers are less than ideal is almost a cliche these days. The hard part is putting in place systems, i.e guardrails, that help us from making the same mistakes in novel ways.

The observations above were taken from the posts below:

You Have to Live It to Believe It – Morgan Housel

“What I’ve experienced as an investor is different from what you’ve experienced, even if we’re from the same generation. And the generation and country you’re born into, the values instilled in you by your parents, and the serendipitous paths we all wander down are out of our control.’

Cognitive load is real – Seth Godin

“Every minute on a website is a minute not spent doing something else. Every decision about what to write in social media is enervating. It’s not like the old days, with just three TV channels and a TV Guide to make that difficult decision even easier.”

You’re Not as Good at Kissing as You Think. But You are Better at Dancing – Spencer Greenberg and Seth Stephens-Davidowitz

“One of the implications of this research is that people may systematically underestimate their ability to do really hard things that they have never tried before — a notable exception being men’s rating of their ability to handle a zombie apocalypse.”

The problem of decision choice – Investors don’t look at enough alternatives – Mark Rzepczynski

“It is not easy to develop alternative choices. We naturally like to limit our choices because our ability to process multiple pieces of information is limited. We also have a problem with processing alternative models that may be in conflict. Alternative models require acceptance of disorder when we prefer an ordered world that follows a few simple rules. So what should an investment manager do?”

How Good Science Can Weed out Bad Managers – Christopher Schelling

“When researching potential asset managers to hire, most people set up the null hypothesis wrong. In conducting due diligence on investment firms, the correct null hypothesis should be that there is no alpha present. In other words, we should assume that any strong past returns are instead the result of luck or unintended factor tilts, unless significant statistical evidence to the contrary can be accumulated. “

Print Friendly, PDF & Email

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.