Horse S*** - Part 1

There is a general tendency amongst some to exaggerate returns or otherwise to exaggerate the potential of certain expectations to turn out well.

Yours truly is also guilty of being overly optimistic. It is a habitual, factual tendency amongst some.

Optimism bias, or a tendency to see the upside in any transaction, with less or no consideration of the downside or the risks, can be a boon in terms of everyday outlook in life.

It can also be detrimental when trying to anticipate the potential returns of an investment. Too much money is poured into a future growth story, for example, in anticipation of the latest technological investment not only turning out well, but also being bought by the buying public at large. Too much expectation is placed on earning too high a return.

Bias

In Charlie Munger's Poor Charlie's Almanack, Charlie Munger gave a seminal speech about the Psychology of Human Misjudgment. The speech is recorded in the said almanack, and includes a list of various popular tendencies of investors to exhibit a bias, prejudice or predisposition in their thinking.

This psychology can be detrimental to the individual investor, when making decisions about where to park or work their money.

A large part of investing is to be aware of such tendencies or biases. To be aware that your investigations and subsequent decision making can be coloured by the way your mind works.

And perhaps to take suitable steps to counteract such tendencies.

Decisions, Decisions

For a copy of Poor Charlie's Almanack, you may obtain them from Amazon US or Kinokuniya Malaysia here.

But are you an overly optimistic person? Do you make outsized bets on investments, hoping for rather than even expecting a higher return?

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