Irrational Investor Thoughts Hit Me….and I Recover

My mammalian brain is not immune to the foibles of bad financial thinking.

But thankfully I have the experience to catch myself making thinking errors, which happened today over a restaurant stock.

My kids love Buffalo Wild Wings. My wife despises it. I love to take the kids there when she isn’t around.

It always seems to be packed. I am sure they have fat operating margins. You see new branches popping up all over the place.

I was going to buy it

I had even considered buying a small amount of Buffalo Wild Wings stock (BWLD) for the kids to get them interested in investing and savings. This was about 6 months ago, and I quickly decided against it. I don’t believe owning individual stocks is a good way to learn about investing. If the stock does great, the investor is likely to get overconfident and want to roll the dice again. If the stock does poorly, they may never touch the market again. Either way, a bad lesson is learned. Much better to get the same investments for the kids that I use for myself and for clients.

But then…..

Buffalo Wild Wings kept going up, up, up and it was up huge today.

I was simultaneously hit with four, well defined, irrational investor attitudes.

Hindsight & Confirmation Bias

Overconfidence

Self-Affirmation Bias

Familiarity Bias

They rushed over me. I should have bought the stock. I knew it was a good company. My kids love the restaurant!!!

Within 10 seconds I was able to catch myself, saved only by all the years and experiences in my professional background. Do I really know more about Buffalo Wild Wings than all the other traders and money managers out there that are watching the company like a hawk (and even they don’t know where it will go)? No! Should I buy the next stock I think is a winner. Certainly No!

But for a few seconds the emotions had a powerful hold on me. I cringe when I think about the well meaning families out there that don’t have the professional experience to catch themselves when they are being swept away with irrational investor emotions. This is the stuff that can ruin an inheritance and put a family into the 70% of unsuccessful inheritors category. This is why I am here to help these families.

Photo by Jeff Wilcox 

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