​Beware of recency bias - the trap that makes us overvalue recent events while ignoring the bigger picture.

Any of these sound familiar?

• Ignore it. The problem will go away.
• I have enough time before the exam, I'll start studying tomorrow
• The grass is greener on the other side.

​And how did that work out for you?

When it comes to your financial plans, do you do the same?
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Let's have a look at what these assumptions could be costing you.

Attention is a precious resource.

And as with any resource, scarcity creates value.
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In the digital age where noise is everywhere, those who can capture the most attention are said to win.

Ask a farmer about average rainfall and he’s likely to react sceptically. Knowing how actual rainfall varies from year to year, farmers carefully manage their crops and irrigation. It’s a lesson many investors could learn as well, with published ‘average’ returns masking a wide range of possible outcomes.

In Leo Tolstoy’s great novel ‘War and Peace’, a Russian general charged with defeating Napoleon and expelling the French from Russian soil argued against rushing into battle, saying the strongest of all warriors were “time and patience”. 

​Just because political or financial news is a diversion, a challenge or even entertaining, doesn’t mean it’s actionable. In fact, what people outside the media rarely appreciate is how many of the headlines you see every day are effectively meaningless. And it’s been really getting on my goat lately! So in this article, I’ll interpret some of the most common headlines and what it actually means for your investments. 

Everybody loves the comforts of home, but investors who become too anchored to familiar territory can end up with a very narrow view of the world.  Home bias, the tendency of investors to allocate a disproportionate amount of their money to their domestic market, is a well–documented phenomenon.

JUMPING ON THINGS THAT SUPPORT YOUR ARGUMENT AND IGNORING THINGS THAT DON'T

People who make bad money decisions can often rationalise them. They will jump on anything that supports their argument, and ignoring everything that doesn’t. In fact, I’ll go a step further and say when it comes to money, some of us have an astounding ability to lie to ourselves.

OVER-ESTIMATING YOUR ABILITY TO HAVE PREDICTED AN OUTCOME AFTER THE EVENT

New Year's resolutions often involve making promises to ourselves we can never keep. But instead fighting a battle you can't win, you can often get better results by just resolving to be less dumb in certain areas.
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And money is a good place to start.