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00:00Alright, let's just jump right in. There's this massive puzzle in the world of investing. We all hear it, right?
00:05Over the long run, the stock market goes up. Simple enough. But if it's so simple, why do so many
00:11smart people, I mean really smart people, end up losing their shirts? It's a huge contradiction. And the answer, well,
00:18it's not buried in some complicated financial chart. It's actually a lot closer than you think.
00:23So, yeah, let's just lay it all out on the table. Stocks have historically been the best game in town.
00:29We see the charts climbing up and to the right. We hear all these stories of people getting rich. But
00:35for most of us, the reality is, well, it's a lot of frustration and, frankly, a lot of losses. So
00:41what gives? How can the investments do so well while the investors do so poorly? It just doesn't add up.
00:48You know, a big piece of the puzzle is that we can't even seem to agree on what investing actually
00:52is. Just picture a family dinner, right? You've got the son talking about investing by day trading crypto. The daughter
00:58chimes in that her luxury handbag is an investment. And then there's a mom who actually owns stocks and rental
01:02properties, but she wouldn't even call herself an investor. It's this fundamental confusion that gets us into trouble right from
01:07the start. We're all playing a game, but we don't even realize we're playing on different fields with different rule
01:11books.
01:11And that right there, that leads us to the real heart of the matter. The reason so many of us
01:17struggle with investing has almost nothing to do with complicated financial models or picking the right company. Nope. The biggest
01:24enemy, the real culprit standing between you and your financial goals is your own brain.
01:30For the longest time, economists had this kind of neat and tidy theory. They believed we're all rational actors. Basically,
01:38that we're all walking calculators who always make the logical choice to get the most money. But then a totally
01:44new way of thinking came along and just blew that whole idea out of the water.
01:48It says, hold on a second. We're not robots. We're messy, emotional, irrational creatures. Our big money decisions, they're often
01:55driven by gut feelings, not cold, hard logic. And that's the fundamental clash right there.
02:00And this whole new field has a name, behavioral finance. It's basically the marriage of psychology and money. It's the
02:08aha moment that explains exactly why we do all the crazy things we do. You know, like clinging to a
02:13stock that's in a nosedive or selling a huge winner way too soon.
02:16It's the science of how our feelings literally hijack our financial decisions.
02:21Let's kick things off with the biggest, baddest emotion of them all, fear. The second the markets start to wobble,
02:28fear grabs the steering wheel and it unleashes these deep-seated mental glitches that can absolutely torpedo your portfolio.
02:35First up, and this one is a monster, is loss aversion. To put it simply, our brains are hardwired to
02:42avoid losing. Anything. It's a primal instinct, right?
02:45Super helpful when you're trying not to get eaten by a saber-toothed tiger, but absolutely terrible when you're trying
02:50to manage a 401k.
02:52And just how powerful is this feeling? Well, get this. The research is pretty clear. The sting you feel from
02:59losing, say, a hundred bucks, is about three times stronger than the joy you feel from gaining that same hundred
03:05bucks.
03:05Three times? That intense gut punch of a feeling is what's behind so many of our worst money moves.
03:12Okay, let's try a little thought experiment. I hand you $2,000. It's yours. Now you've got two choices.
03:19Option one, you can accept a guaranteed for-sure loss of $500. Or, option two, we flip a coin.
03:26Heads, you lose $1,000. Tails, you lose nothing. What do you do?
03:30Overwhelmingly, people choose to flip the coin. They will literally risk a bigger loss just to avoid the certainty of
03:37a smaller one.
03:37That, my friends, is loss aversion in a nutshell.
03:41And in the real world, the fallout from this is massive. It's the reason we cash out our winners way
03:46too early. We just want to lock in that small, safe gain.
03:50But even worse, it's why we hang on to our losing stocks forever, praying they'll bounce back. Why?
03:56Because hitting that sell button would make the loss real, and that hurts too much.
04:00So we end up selling our flowers and watering our weeds, the exact opposite of a winning strategy.
04:06Fear also cooks up another one of our favorite mental mistakes, the sunk cost fallacy.
04:13This is that little voice in your head that tells you to keep throwing good money after bad just because
04:18you've already invested so much.
04:19We just hate admitting we were wrong.
04:21Here's a classic example. Let's say you paid 50 bucks for a movie ticket, but on your way to the
04:27theater, you lose it.
04:28Do you buy another one? Most people say no way.
04:31Now, what if instead of losing the ticket, you lost a $50 bill from your pocket?
04:36You'd probably still go and buy the ticket. Think about that.
04:39In both scenarios, you're down 50 bucks.
04:42But in the first one, our brain has already spent that money on the movie.
04:46Buying another ticket feels like you're paying $100 to see that film.
04:50It's just a bizarre mental accounting trick that costs us real money.
04:56All right, so fear is a huge problem, but it's not the only demon in the closet.
05:00Because when the market is flying high, its evil twin shows up, greed.
05:04And greed is a different beast.
05:06It makes us feel like we're geniuses, like we're invincible.
05:09And it triggers a whole other set of mental traps that are just as deadly.
05:14It usually starts with something called the endowment effect.
05:17This is our weird tendency to overvalue stuff just because we own it.
05:21The second you buy a stock, your brain whispers,
05:23Oh, this one's different. This one's special.
05:25Why? Just because it's yours.
05:26And that makes it almost impossible to see it for what it really is.
05:30And once you're convinced your stocks are special,
05:32it's a very short trip to believing that you're special.
05:35And that, of course, is overconfidence.
05:37You get a few lucky wins in a bull market, and suddenly you're not just lucky anymore.
05:41You're a financial wizard. You've cracked the code.
05:43Like one of the sources puts it so well, a rising market lifts all egos.
05:47So what happens when one of your genius picks starts to tank?
05:51Does your ego let you cut your losses? Of course not.
05:54Instead, we get stuck on a number.
05:55This is called anchoring.
05:57We become totally fixated on the price we paid for the stock.
06:00We tell ourselves,
06:01Oh, I'll just sell it as soon as it gets back to what I paid.
06:04We let that old or relevant price dictate our entire strategy,
06:08even if the company is clearly sinking.
06:10It's a completely irrational anchor weighing us down.
06:13And when the fear or the euphoria gets really intense,
06:16we just throw our own thinking out the window and run for the safety of the crowd.
06:21This is the big one, folks.
06:23Herd mentality.
06:24We are wired to be social animals.
06:26We feel safer doing what everyone else is doing.
06:29So what do we do?
06:30We pile into the hot stocks at the very top with everybody else,
06:33and then we panic and sell at the very bottom right alongside the stampeding herd.
06:37We basically let the mob make our most important financial decisions for us.
06:42Okay, so I've just painted a pretty grim picture, right?
06:45It sounds like our brains are just these minefields of emotional traps
06:48designed to make us lose money.
06:50But here's the good news.
06:51Just knowing that these biases exist is half the battle.
06:54So now let's talk about what to do about it.
06:57Let's build a real action plan.
06:59First things first, it's all about a change in perspective.
07:02You have to start thinking of investing like farming, not like a slot machine in Vegas.
07:06A farmer plants a seed, and then they have to be patient.
07:09They have to tend to it, wait through the seasons, the sun, the rain, the cold.
07:14You can't just stick a seed in the ground and demand a harvest the next day.
07:17This whole idea of getting rich quick, it goes against the fundamental laws of growth.
07:21And that brings us to a really key insight from the legendary Benjamin Graham,
07:25the guy who taught Warren Buffett.
07:27He basically said that the market's crazy up and down swings
07:30are nothing more than the reflection of mass human emotion, hope, fear, and greed.
07:35A truly wise investor doesn't get sucked into that drama.
07:39They stand apart from it.
07:40They do what Buffett says.
07:41They get fearful when others are greedy and greedy when others are fearful.
07:45So here it is, a simple but incredibly powerful three-step plan.
07:50Number one, have a plan before you even start.
07:53Seriously, write down your goals.
07:55Write down why you're buying a particular investment.
07:58This becomes your logical anchor when the emotional storm hits.
08:01Number two, think of your portfolio like a business.
08:05Don't get obsessed with any single stock.
08:07Some of your ideas will fail.
08:08That's fine.
08:09It's the overall performance of the whole business that counts.
08:12And finally, number three, and this is maybe the most important, automate everything.
08:17Set up regular automatic contributions.
08:19This is your secret weapon because it takes your emotional, impulsive, mistake-prone brain
08:24almost completely out of the decision-making process.
08:26You're putting your success on autopilot.
08:29And all of this really boils down to one final, very personal question you have to ask yourself.
08:34When you look at your own decisions, are you really investing with a plan for the long term?
08:39Or are you just gambling with your emotions?
08:41Because the answer to that question will determine everything.
08:44You're investing.
08:44You're investing.
08:45You're investing.
08:45You're investing.
08:45You're investing.
08:45You're investing.
08:45You're investing.
08:46You're investing.
08:47You're investing.
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