\nMichael \u00a0Yardney<\/b>\u00a0from Metropole Property Strategists shares a few more helpful pointers on why investors often get it wrong and what you need to do to get it right. We are talking about the procrastination, hyperbolic discounting and information overload.
\n <\/p>\nTranscript:<\/h4>\n
Kevin<\/b>:\u00a0 I was talking to Michael Yardney last week in the show, and we have been discussing, over the last few weeks, the psychology of success and the things that hold us back. We get in our own way. We\u2019re our own worst enemy. Michael \u00a0Yardney\u00a0from Metropole Property Strategists shares a few more helpful pointers on why investors often get it wrong and what you need to do to get it right. We are talking about the procrastination, hyperbolic discounting and information overload. Transcript: Kevin:\u00a0 I was…<\/p>\n","protected":false},"author":176692471,"featured_media":3819,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,25],"tags":[82,101],"class_list":["post-3817","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-sponsored-channels","tag-investor-mistakes","tag-podcast"],"yoast_head":"\n
\nBut what about procrastination, Michael? This is the one, apart from negativity, that I hate the most.
\nMichael<\/b>:\u00a0 This is deciding to act in favor of the present over investing in the future. Look, we all procrastinate at times, but in the arena of property investment, those who sat on the sidelines over the last couple of years waiting for the investment horizon to look clearer, they\u2019ve actually missed out on some fantastic opportunities.
\nYou have to decide the difference between doing your homework and doing your research, and then getting stuck in analysis paralysis and procrastinating. As you say, Kevin, that\u2019s a very big problem for many beginners.
\nKevin<\/b>:\u00a0 What about the people who are content with the present, as opposed to the adventures and what the future may hold?
\nMichael<\/b>:\u00a0 Psychologists call this hyperbolic discounting. It\u2019s a fancy word for the tendency for us to prefer smaller pay offs now rather than a larger pay off in the future. It leads us to disregard the future. It\u2019s a bit like \u201ceat, drink, and be merry, for tomorrow you may die.\u201d That\u2019s because the consequences that occur later in time, way out in the future, whether they\u2019re good or bad, seem to have a lot less bearing on our choices today.
\nNow, financial institutions, banks, and credit card companies build their businesses on this hyperbolic discounting because borrowing money and paying interest are actions that spend future resources for the benefit of that one-off gratification now.
\nI guess that\u2019s one of the reasons that Warren Buffett said, \u201cWealth is the transfer of money from the impatient to the patient.\u201d It\u2019s important in wealth creation to have a long-term perspective, Kevin.
\nKevin<\/b>:\u00a0 Yes. We\u2019ll look back now. What about the people who say, \u201cI knew it all along. I knew that was going to be the case.\u201d
\nMichael<\/b>:\u00a0 Oh, yes. How many people predicted the global financial crisis, the property boom, or the property bubble?
\nKevin<\/b>:\u00a0 Yes, and they continue to.
\nMichael<\/b>:\u00a0 Yes, they do. Hindsight bias is the tendency for people to overestimate the ability to have predicted an outcome that they couldn\u2019t possibly have predicted. The problem is that too often, we actually didn\u2019t know it all along. We only feel now like we probably did then.
\nUltimately, this hindsight bias does matter, though, because it gets in the way of us learning from our experiences. If you feel like you knew it all along, it means you don\u2019t stop to examine why something really happened.
\nHindsight bias can also make us over-confident, Kevin, and it actually clouds our judgments.
\nKevin<\/b>:\u00a0 Is it a fallacy and a fault, too, to think that we can control the uncontrollable?
\nMichael<\/b>:\u00a0 Yes, Kevin. Delusion of control is a tendency for all human beings. We believe that we more or less influence the outcomes that, in fact, we have no influence over.
\nOne simple form of this fallacy is found in casinos when you roll the dice in craps. You\u2019ve seen them in the movies. They actually throw the dice harder to get a higher number or throw it softer to get a lower number.
\nIn property, the concepts much the same if you think you have all your risks covered. In my mind, risk is what\u2019s left when you thought of all the things that could go wrong.
\nKevin<\/b>:\u00a0 Indeed. What about information overload, analysis paralysis?
\nMichael<\/b>:\u00a0 This is the tendency to seek information which actually doesn\u2019t affect our actions. More information isn\u2019t always better, Kevin. Indeed, with less information people can often make more accurate assessments because too much information, as you say, does lead to paralysis.
\nI\u2019ve found successful investors<\/a> take action knowing they don\u2019t know everything. But they know they know enough to get started, and they\u2019re prepared to learn the rest along the way.
\nKevin<\/b>:\u00a0 Michael, what about the people who make a mistake? They know they\u2019ve made a mistake, but they rationalize it to themselves and try to rationalize it to other people, as well?
\nMichael<\/b>:\u00a0 Oh, we\u2019re humans, aren\u2019t we? That\u2019s called post-purchase rationalization. We all do this in some form or another at some point of our life. We buy something and it\u2019s not up to the standard we expect, yet we want to believe we didn\u2019t waste our time, our energy, our resources, so we rationalize our purchase.
\nIt happens more often with impulse buys than when we have a carefully planned investment decision. Yet, many investors get carried away. They buy one of the first properties they see that first weekend or when they get excited at a seminar and sign up for a property at the back of the room, when boy, they should have known better, Kevin.
\nKevin<\/b>:\u00a0 Michael, what\u2019s the bottom line?
\nMichael<\/b>:\u00a0 There are probably a lot of biases that we experience, and therefore it\u2019s important to recognize them.
\nOne of the big ones is personal history bias. Depending upon your experience in life, your viewpoints will likely influence your attitude to investing as to everything else. Research shows that the way you feel about a topic is generally pervasive and was most likely shaped by the experiences in your youth.
\nSomeone who grew up in the Great Depression \u2013 like our parents would have \u2013 for example, a much, much different attitude towards money and investing than someone who grew up in a family that experienced financial prosperity in the 1980s. These influences are going to show in the risks they\u2019re willing to take, investments that appeal to them, and how they\u2019re going to handle money and wealth, Kevin.
\nKevin<\/b>:\u00a0 Indeed. Michael, it\u2019s been great talking to you about the psychology of success. I\u2019ve learned so much over the last few weeks. Thank you.
\nMichael Yardney from Metropole Property Strategists. Thanks, mate.
\nMichael<\/b>:\u00a0 My pleasure, Kevin.
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