Horse S*** - Part 2

There is a general tendency amongst some to exaggerate problems or otherwise to exaggerate the potential of certain investments to turn out badly.

Yours truly can also be guilty in certain circumstances of being overly pessimistic. It is a habitual, factual tendency amongst some.

Pessimism bias, skepticism or a tendency to see the downside in any transaction, with less or no consideration of the upside or the returns , can be a good defence mechanism in terms of everyday outlook in life.

It can also be detrimental when trying to anticipate the potential risks of an investment. Too little money is poured into a sure value bet, for example, when it is a sure buy. Too much expectation is placed on avoiding problems or potential pitfalls.

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 pessimistic person? Do you over analyse your investments, to the point of analysis paralysis?

Please feel free to leave a comment, question or like in the space below!