Behavioral Finance: Why investors make the decisions they do

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” — Benjamin Graham (1894–1976) Legendary economist and investor Benjamin Graham made his timeless observation decades ago, and yet it reflects our enduring belief: Your own behavioral biases are often the greatest threat to your financial well-being. As investors, we leap before we look. We stay when we should go. We cringe at the very risks that are expected to generate our greatest rewards. All the while, we rush into nearly every move, only to fret and regret them long after the deed is done. Why Do We Have Behavioral Biases? Most of the behavioral biases that influence your investment decisions come from myriad mental shortcuts we depend on to think more efficiently and act more effectively in our busy lives. Usually (but not always!) these short-cuts work well for us. They can be powerful allies when we encounter physical threats that demand reflexive reaction, or even when we’re simply trying to stay afloat in the rushing roar of deliberations and decisions we face every day. But those same survival-driven instincts that are otherwise so helpful can turn deadly in investing. They overlap with one