50 Cognitive Biases to Be Aware Of in Life & Investing
One of the most important aspects of investing is controlling your own emotions. It can single handily be the most powerful, at the same time destructive force in building wealth.
As humans, we have the ability to develop cognitive thinking as we gain and develop knowledge through life experiences. Unfortunately, we develop multiple biases that can be damaging to our critical thinking and decision making.
Being aware of your own biases, is an extremely important trait to have. By being self aware of your limitations in thinking, you can significantly increase your chances of having more positive outcomes in both life and investing.
Warren Buffett 1985 Interview
In a 1985 interview, Warren Buffett was asked what he considered the most important quality for an investment manager. This was his response:
"It's the temperamental quality not an intellectual quality. You don't need tons of IQ in this business (investing). I mean you have to have enough IQ to get from here to downtown Omaha but you do not have to be able to play three-dimensional chess or be in the top leagues in terms of bridge playing or something of a sort. You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls it's a business where you think. (Benjamin) Graham would say that you're not right or wrong because a thousand people agree with you and you're not right or wrong because a thousand people disagree with you. You're right because your facts and your reasoning are right."
Although Buffett is far from perfect, a lot of his success has come from being very self aware of his own limitations and biases.
Here is an infographic developed by TitleMax that categorizes and explains 50 cognitive biases to be aware of in everyday life.
In case you are interested and go looking for the 1985 interview of Warren Buffett, I will save you some time. Here it is.
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