Avoiding biases in your investments
In Friday’s edition of the Summer Series, Roger Montgomery explained in his Whitepaper <a href="https://www.livewiremarkets.com/wires/34157" target="_blank" data-event-type="click" data-event="link_click">(VIEW LINK)</a> the difficulty of the task that investors face in avoiding a range of biases that threaten their returns. Despite our desire to be rational decision makers, our ‘humanness’ conspires against us and we engage in things like anchoring, herding, and loss aversion. As investors, we must find a way to deal with this if we hope to achieve above average returns.
One way we can help reduce our susceptibility is by maintaining a valuation on our investments. Valuations don’t require high levels of complexity, in fact, simplicity can be a virtue as it reduces room for error. In my own process, I use valuation to serve a number of purposes:
- Identifying a point of entry and exit for a position
- It gives me something to hold onto when prices fall
- The process of valuation forces me to complete appropriate due diligence
- It acts as a bridge between the story of a business and the numbers in my model
There are many different approaches to valuation, each with their own merits and shortfalls. If you’d like to learn more about valuation, Monash Investors have prepared an excellent guide to pricing and valuing stocks, which you can access here: (VIEW LINK)
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Patrick is the founder and director of PLP Finance Media, a content production and strategy consulting agency specialising in investment content and communications. He also writes for A Rich Life.
Patrick was a Market Analyst, Editor, Senior Editor, and Managing Editor at Livewire Markets between 2015 and 2022. He was the Content Director and a member of the Investment Strategy & Research Group at Betashares between 2022 and 2024. He is an expert on listed products, commodities, and investment strategy, with a particular interest in gold and uranium,.
5 topics
Patrick is the founder and director of PLP Finance Media, a content production and strategy consulting agency specialising in investment content and communications. He also writes for A Rich Life. Patrick was a Market Analyst, Editor, Senior...
Expertise
Patrick is the founder and director of PLP Finance Media, a content production and strategy consulting agency specialising in investment content and communications. He also writes for A Rich Life. Patrick was a Market Analyst, Editor, Senior...
Expertise
Comments
Comments
Sign In or Join Free to comment
most popular
Equities
This recently triggered market signal has never failed to predict gains
Ophir Asset Management