What is standing between you and property investing success?
It could be YOU!
Maybe you’re too biased to be a successful property investor.
What do I mean by that?
Well…did you know that as property investors we can sometimes be our own worst enemy?
It’s not because of the decisions we make, the opportunities we consider, or the investments we miss out on, but rather, it’s due to the way we think.
It was written about Cognitive Biases before. About how we think we're rational investors but we're not.
There is no shortage of cognitive biases out there that can trip up to our brains.
By the last count, I've read that there are 188 types of these fallible mental shortcuts in existence, and they constantly impede our ability to make the best decisions about our careers, and our relationships, and build wealth over time.
Recently Visual Capitalist provided the infographic of five of these cognitive biases which really seem to throw investors for a loop.
Next time you are about to make a major property investment decision, make sure you double-check this list!
5 BIASES TO AVOID
Here's some more details about these five cognitive biases:
Anchoring Bias
The first piece of information you see or hear often ends up being an “anchor” for others that follow.
Anchoring explains why you’ll pay $6 for an hour of parking after seeing $10 at a car park down the street.
The first number you see, especially when its a price that comes up in negotiation, colours any that come after it.
A high anchor influences you to spend more than you normally would
- Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – November 2024
- Also read:This week’s Australian Property Market Update – Latest Data, State by State November 19th 2024
- Also read:Melbourne property market forecast for 2025
- Also read:Sydney property market forecast for 2025
- Also read:Brisbane’s property market forecast for 2025
Recency Bias
Recency bias is a tendency to overvalue the latest information available.
If you heard that the property market has slowed down your impulse may be to overvalue this recent news and sit on the sidelines.
However, you should be careful, and instead focus on long-term trends and experience to come up with a more measured course of action.
Loss Aversion Bias
No one wants to lose money, but small losses happen all the time even for the best investors – especially on paper.
Loss aversion bias is a tendency to feel the effects of these losses more than wins of equal magnitude, and it can often result in a sub-optimal shift in investing strategy.
Investors that are focused only on avoiding losses will miss out on big opportunities for gains.
Confirmation Bias
Taking in information only that confirms your beliefs can be disastrous.
It’s tempting, because it is satisfying to see your previous conviction in a positive light – however, it also makes it possible to miss important findings that may help to change your conviction.
Bandwagon Bias
No one wants to get left out, but being the last one to pile onto an opportunity can also be cataclysmic.
If you’re going to be a bandwagon jumper, make sure you’re doing it for the right reasons.
Read more about these interesting concepts here:
