This Is For People Who Hate Losing Money… Especially when they invest…
Have you ever seen someone buy a piece of real estate for say, $1 million, and then they put it up for sale at $1.25 million?
They get no buyers.
They then lower the price again and again and again, but won’t go below what they bought it for? In this case $1 million.
Or…Why is it that when we buy a stock for $10, and then it goes to $7, we immediately think about selling it once it goes back to $10?
We hate losing money! Pain. Major pain. Like Clubber Lang in the movie Rocky PAIN.
How about when the stock market peaked in 2000, and as the Dow began to fall, many investors were waiting to sell when their portfolio came back to a round number: $100,000, $1 million, or $5 million?
What is going on inside our minds? Are we playing games with ourselves?
When we make decisions, we have this weird ANCHORING BIAS.
We are influenced by:
- Our cost basis (what we bought something for)
- A random price point
- Or some number we have in our minds.
This number has no real bearing to anyone else, but it means a TON to us.
This happened to me yesterday! I was looking for Cirque Du Soleil tickets. I picked an arbitrary number – $200 a ticket.
I told myself that if I could buy a ticket for $200 or less, than I would go. I wouldn’t budge at all. I had no frame of reference for this price. I pulled it out of thin air!
I just picked some funky number. I anchored my decision to this number.
So how can we prevent ourselves from getting too emotional when we make financial decisions?
- Be flexible and open to making a new decision after you make your first decision
- Just because a stock, mutual fund, or piece of real estate was at a certain value, doesn’t mean that your investment will come back
- Try not to place so much importance on one specific factor – or NUMBER – when making a decision
- Make decisions that move you CLOSER to your goals
Send this post to someone that is just stuck. No more anchoring. Get financially jiggy. Tell them to get out of their own way.