Helpful in the Jungle, Dangerous in Investing
Impossible to avoid, the news bombards us with data that makes us want to act. The majority of news is negative, the majority of the time. Negativity causes fear, and fear causes our fast-thinking brains moving. We enter fight/flight mode quickly. We want to act quickly—and that is often an expensive mistake, when it comes to our investments.
What we see is what is important. This fallacy is called availability bias, and like many of the key heuristics, it is a deeply rooted, instinctual survival technique. The fast-acting brain says, “I see danger! Fight!” or “Run!” Part of us is always looking out for danger—again, helpful in the jungle, dangerous in investing.
Availability bias is like loud dance music with a deep bass. Beating next to us, it’s hard if not impossible to engage our long-term thinking brains and make rational investment decisions. Whatever we see and hear is the most important information to see and hear, according to someone else. For example, a common complaint we hear is the news media is filtered by either conservative or liberal editors. Whatever the editor chooses to present may or may not be the information that is important for us—but that is what we have available.
The danger of the availability bias is that we take a short-term action with a poor long-term result. Investing is a long-term endeavor and, almost always, any short-term decision is a mistake. The availability bias confuses our timeframes, and constantly bangs on the door, “danger!” Usually, this means selling out of long-term investments. Over long timeframes, selling for short-term reasons is almost always a mistake.
To counter the availability bias, turn off the news. Focus on the financial plans. Think about your goals and values. Ask yourself why you are investing—not how (or in what investments)—but the reason for the investments. The news, the markets, the companies we are invested in, care nothing and know nothing about what is important to you. But your advisor knows and cares as much as anyone in your family about what you are investing for, and why, and they are ready to listen and guide you towards achieving what is most important to you.