Belief Systems

Why do so many intelligent people not transfer their success to investing success? Think about that for a minute. Got an answer?

Now consider this question. Why has investing research such as the following found that psychologists are more successful investors than some of the smartest people around?

Recently, a research, which was conducted by Bank of England, the universities of Heidelberg and Bonn together with McKinsey, observed the share-buying behavior of about 6,500 persons in an Internet experiment. They found that psychologists, particularly, were good at guessing other players behavior and mistrusted the overvalued stock by others. On average, psychologists were markedly more successful in their speculation than physicists or mathematicians – or even economists.

One answer is that most investors focus on valuation and detailed fundamental research as their belief system tells them a scientific, quantifiable, repeatable approach is the path to success. After investing for twenty years I am almost positive (that’s as sure as a doubter like me gets) that there is no edge to be gained from valuation and detailed fundamental research. Perhaps the absolutely smartest, most experienced and skilled fundamental investor can gain an edge through their research, but is that you? Fundamental analysis is a necessary step, for most investors, but it is not the key to alpha.

Take a few minutes to consider what beliefs you may have that are stopping you from become a better investor. Invert every belief you have. Consider your core investing beliefs from every angle.

A life coaches would suggest you make a list of all your disempowering beliefs and ask yourself these three questions:

1. Why do I believe this?
2. What is this belief costing me?
3. What do I have to loose if I let go of this belief?

I hope you found at least one investing belief that limits your possible success. I’d love you to read what it was.

Didn’t come up with a disempowering or limiting belief?

How about these few?

• It is impossible to time the market. (Any belief you have which includes the word impossible should receive double your focus!)
  Invert it.
  It is possible to time the market. Now write down, research, consider how it is possible.
• Technical Analysis is a waste of time.
  Turn that frown upside down.
  Technical Analysis can give me an edge and help me gain an extra percent or two when both buying and selling.
• Options are risky?
  Options are less risky than direct share ownership.

A major disempowering belief that I have held since my early teens is that I could never be a teacher. When I became a dad I realised that was a disempowering belief I had to tackle head. I’m still working on it and hopefully incrementally improving. Part of my problem is another disempowering belief I’ve held since childhood, I must learn that not everyone is a dickhead!

So why do psychologists outperform? They understand behaviour and have learned understanding of psychological biases. Could that become an edge for you?

Cheers
Dean

Related posts:

1. 21 Days to Becoming a Better Investor