Summary: <br> Welcome to the Investing for Beginner’s podcast I’m Dave Ahern, and we have Andrew Sather. Tonight we’re going to talk about investing with your brain we’re going to talk a little bit about how your thoughts can affect the decisions that you make when you invest.<br> Charlie Munger is one of my big heroes, and he has written many great articles, speeches, a few books about biases and tonight we’re going to talk about some of the more common biases and Andrews going to go ahead and start us off by talking about the recency bias.<br> Andrew: yeah so obviously we’re all human beings, and something I love to preach constantly is how the stock market is very emotional.<br> We got fear, we got greed, and it’s because it’s made up of all these people and there are some common psychological aspects that we as human beings all share that as investors that can affect the way we behave.<br> Many of times we’re not aware that this is things that are influencing our decisions. So, if we can kind of cut that off at the beginning before it can negatively affect it can help our performance recency bias this is the idea that something that just happened is more likely to happen.<br> An obvious example of this is when you see trend followers, and you know they see a 1-month chart and it just has the price going straight up.<br> The recency bias would say that you know as an investor you expect that stock to continue that trend or you may have the stock that’s been flat for like two years because you see that this price is moving. And the price has nothing to do with the value of the business what’s going on in the business. We’re not digging into the financials<br> and looking at how are the assets changing are the earnings changing strictly looking at the charts.<br> I remember particularly when I first started out I would often let the last two years or last five years or even six months of stock price data kind of influence how I perceived the future of the stock to be likely to happen. And it’s completely just a ridiculous thought there’s like it’s like a coin flip where you know if you start to see heads consecutively.<br> We have this idea where there are things like momentum and things like you know superstitions that certain streaks can continue some in some areas like sports.<br> You know this can happen when you have human beings, and they’re you know their confidence and things like that effect how their performance is going to go on. But when you have companies and things that you know things that are very mathematical in the sense that if the company gets great earnings, it’s going to.<br> It’s you know if a company sells X number of products it’s going to have this amount of earnings, and as the stock prices fluctuate through the years, the chances of a stock going up or down can be close to 50%.<br> You look over a very long period of the time I’ve seen the numbers, and I have looked at the sp500. And took all the daily changes in price and put them out on the big spreadsheet and looked and the percentages are very close to 50/50 slightly tilts towards the market going up.<br> While it does fall further when it does fall well more of the days go up and down, but so you have really like a problem a probability kind of like a game of chance kind of like a coin flip on whether a stock can well go up or down the following day.<br> It’s it’s not something that they’ve done Studies on this – don’t quote me particularly on the exact study but they have a study that says basically whatever a stock did the day before does not correlate whatsoever with how the stock will perform in the next day the next week.<br> Things of that nature so that is a big aspect of recency bias and it’s something that can kind of cloud the way that we look at stocks t...
