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5 biases plaguing the everyday investor

5 biases plaguing the everyday investor

August 15, 2023

"Over time people get smarter but not wiser. They don't get emotionally stable. You can teach people all you want, tell them to read Graham's book, you can send them to graduate school, but when they are scared, they really get scared." - Warren Buffett

Warren Buffett purchased more than 20 million shares of this stock in 2022.  And it has a 133% return. But can that growth sustain? - MarketWatch

I have a Master's Degree in Family Financial Planning and Counseling from The University of Alabama. 

I graduated top 10% of my class and finished with a 4.0. 

Today I will teach what a Master's degree will not:

5 Biases Working Against Investors

[1] Survivorship bias 

Judge me by my failures, not by my successes. 

Unfortunately, that's the inverse of survivorship bias.

Survivorship bias causes us to focus on successful outcomes while ignoring failed outcomes.

The unfortunate truth is that more can be learned through studying failed outcomes than will ever be learned through studying successful ones.

Learning why things fail requires a much deeper understanding than learning why they work.

If you master the former, you will find that the latter comes naturally. 

[2] Confirmation bias 

Notice how we only watch the news channels that reaffirm our existing beliefs? 

Say hello to my little friend....confirmation bias. 

Our minds crave validation, leading us to seek evidence that reaffirms what we already believe, even when it's likely inaccurate.

Stay open-minded and challenge your assumptions.

I once made it a point to only follow people who thought differently than me on social media.

It opened my eyes to many topics. I even learned that I was wrong on many things.......a tough pill to swallow.

[3] Action bias

Deciding not to act is still an action. 

There is a book that will soon be released titled, "Shut Up and Wait." There will be very few pages and plenty of graphics that look like this: 

Life and investing aren't as simple as the graphic depicts but it raises important points.

The point that the author is attempting to make is that many poor results are positively correlated to impulse decisions that we make like selling out of fear.

Sometimes, it's essential to pause, breathe, evaluate, and then decide whether or not to act.

[4] Availability bias 

Our brains default to the path of least resistance. 

This means we will often rely on our friends and family as experts in a specific subject matter.

This can be dangerous especially when our money is on the line.

It's important that we do our own research before believing something that we hear.

If it means scouring news articles on a specific topic, try to read as many as possible.

This will allow you to form your own opinion that is unbiased. 

[5] Overconfidence bias   

"To a man with a hammer, everything looks like a nail." - Charlie Munger

Confidence is a double-edged sword; troublesome with scarcity and explosive in abundance. 

Overconfidence bias makes us overestimate our knowledge and capabilities. 

It takes on average 10+ years to become an expert in a subject matter.

This leaves very little time to become an expert on more than a few topics. 

If someone convinces you otherwise.. 

Approach them with caution.

Self-Reflection Time

Now that we've explored these biases, it's time to think a bit. 

We all have biases, and it's okay! Understanding them is the first step towards better thinking. 

Which biases do you struggle with the most? Did I miss any? Let me know!

Ps... I am getting married this Saturday! Being said, I will be out of the office beginning this Friday, August 18th until my honeymoon on August 28, 2023. 

You can reach our office by sending an email to or by calling our office @ 662-843-5923 during this time.

As always...we thank you for your trust!