On today’s episode, we have Dr. Daniel Crosby joining us for an insightful discussion about the psychology behind investing behaviour. Dr. Crosby is a behavioural finance expert and asset manager who applies his study of market psychology to help people better understand the financial decisions they make and to shed some new light on our ability to be rational. We talk about the inevitability of our emotions and how they impact our actions, but also how they might be leveraged for positive outcomes. As far as behavioural biases are concerned, overconfidence is by far the biggest threat to our investment success, but on the flip side, Dr. Cosby shares why, outside of investing, this trait can serve us really well. We enquire about his thoughts on how wealth changes people’s behaviour, on whether the FIRE Movement has some credibility to it, and he explains why having a strong theoretical underpinning is necessary when making decisions based on empirical data. Join us for some more science-based investment advice!  

 


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Key Points From This Episode:

  • The rationality of people and the possibility of leveraging emotion in finance. [0:02:26.0]
  • Research that shows why you should work with a financial professional. [0:06:46.0]
  • Behavioural biases and overconfidence as the most dangerous one. [0:11:05.0]
  • Avoiding overconfidence by understanding that investment rules are different. [0:13:47.0]
  • The extent to which people’s behaviour is affected by those around them. [0:17:58.0]
  • How significant changes in net worth changes a person’s investment traits. [0:25:36.0]
  • Thoughts on the FIRE Movement and how investors should look at risk. [0:28:06.0] 
  • Behavioural and risk-based factors and the necessity of a theoretical underpinning. [0:37:06.0] 
  • And much more!

 

Tweetables:

“On average, people who work with a financial professional did about 2 to 3% better per year than those who didn’t.” —  @danielcrosby [0:07:00]

“There are 177 different behavioural biases at my last count, but overconfidence is sort of the granddaddy of them all because overconfidence is the bias that begets all other biases.” — @danielcrosby [0:11:06]

 

Links From Today’s Episode:

Rational Reminder Website — https://rationalreminder.ca/

Dr Daniel Crosby on LinkedIn — https://www.linkedin.com/in/danielcrosby/

Dr Daniel Crosby on Twitter — https://twitter.com/danielcrosby

Brinker Capital — https://clients0.brinkercapital.com/

Brigham Young University — https://www.byu.edu/

Standard Deviations podcast — https://www.standarddeviationspod.com/

The Laws of Wealth https://www.amazon.com/Laws-Wealth-Psychology-investing-success/dp/0857195247

Vanguard — https://about.vanguard.com/

Morningstar — https://www.morningstar.com/

Envestnet — https://www.envestnet.com/

Donald Trump on Twitter — https://twitter.com/realDonaldTrump

The Behavioral Investorhttps://www.amazon.com/Behavioral-Investor-Daniel-Crosby/dp/0857196863

Morgan Housel — http://www.morganhousel.com/

Warren Buffet — https://www.investopedia.com/warren-buffett-4689826

The PERMA Model — https://positivepsychology.com/perma-model/

Jim O’Shaughnessy on Twitter — https://twitter.com/jposhaughnessy

 

Download the transcript of this episode here: Rational Reminder Podcast – EP. 75 – Transcript