MYM #001: Be a Goldfish?

In this week's newsletter, we'll explore an essential concept for successful decision-making: using history as our guide.

For our Ted Lasso fans out there, he has a saying “Be a Goldfish” when he is teaching the players to have a short memory out on the field after making mistakes. 

Unfortunately, in the investing world, we want to do just the opposite! (Sorry Ted, we still love you) Let's dive right in!

By understanding the importance of historical context, you gain valuable insights that can shape your decision-making process. 

Recency bias often leads to poor decisions. It's natural for our minds to give more weight to recent events, but this can cloud our judgment and prevent us from recognizing patterns and trends that can inform better choices.

"The past holds the keys to our future success. By embracing history as a guide, we unlock a wealth of knowledge that can elevate our decision-making to new heights." 

Key Points:

Avoid Recency Bias:

• The dangers of giving too much weight to recent events.
• Overcoming the natural tendency to focus on the short term.
• How to recognize and counteract recency bias in your decision-making.

Historical Performance:

• The value of analyzing historical data and trends.
• Identifying patterns and recurring themes.
• Learning from the successes and failures of the past.

Long-Term Mindset:

• Shifting your perspective from short-term gains to long-term growth.
• Strategies for developing a patient and resilient mindset.
• How a long-term approach can lead to more consistent and sustainable success.

Avoiding Recency Bias: 

The news often resorts to creating hype, fear, and hysteria around the stock market in an attempt to generate views and clicks. Sensational headlines, exaggerated predictions, and dramatic narratives grab attention and drive engagement. 

Many individuals will fall into the trap of wanting to invest in the “hot” thing at the moment. It’s important to stay diversified, and not let short term trends affect our decision making & make long term mistakes.

A great example of this is crypto! What happened in late 2021? Everything is flying high, everyone wants to get in on the action, and every article has the word BITCOIN in it - the boom! Markets take a tumble, everything comes crashing down, now all you hear is doom & gloom, despite the fact that 60-70% drops are very COMMON for the crypto space

Historical Performance:

Using history as our guide in investing is crucial because it provides valuable insights into market patterns, trends, and potential risks. 

By studying past market cycles, investors can gain a deeper understanding of how different factors and events have influenced asset performance. This allows us to learn from both the successes and failures of the past, helping us make more informed investment decisions for the future.

Every time there is a new “end of the world story” people like to pretend it's different from anything else! And maybe one time it will be, but all we can do is use history as our guide to make smart investment decisions. Here is a great example from Ben Carlson:
 

This is the 9th time since 1950 that the S&P 500 is down 25% or worse

Past performance is no guarantee and such

It could always get worse before it gets better

But historical returns from down 25% are pretty good 1, 3, 5 & 10 years out

Details here:https://t.co/HdqOXwsAgu pic.twitter.com/JfXsLaBzI2

— Ben Carlson (@awealthofcs) October 2, 2022

Long-Term Mindset:

Maintaining a long-term mindset in investing is crucial as it allows investors to navigate the inherent volatility of the market with patience and resilience. 

By focusing on long-term goals and disregarding short-term fluctuations, investors can avoid the noise and emotional reactions that often lead to poor decision-making. 

A long-term perspective enables one to capture the potential benefits of compounding returns and ride out market downturns, ultimately increasing the likelihood of achieving sustainable and significant investment growth over time."

WHEN IN DOUBT - ZOOM OUT

Actionable Tip:

Stop opening up your apps & panicking every time you get a CNBC or CNN alert that something has gone wrong in the world. Figure out a long term plan that aligns with your personal goals, and stick to it. Don’t let knee-jerk reactions or scary news headlines throw off all the hard work you are putting in to obtain financial independence!

You Got This!

Whenever you're ready, there are 2 ways we can help you:

​1. The Master Your Money System. Transform your personal finances into an automated machine with our Master Your Money system. This comprehensive video course will teach you the automated system we use to serve our millionaire private client base to maximize every dollar earned.

2. Become part of our private client group. If you’re in your 30’s or 40’s, earning more that $150,000 of income, and looking to maximize every dollar earned, but need speed and convenience, consider booking a meeting with us to see if we should join forces to work one-on-one.