How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

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goingup
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by goingup »

*Automate purchases
*Make portfolio changes only 1X per year (if necessary)
*Chose gurus like Jack Bogle, Rick Ferri, Taylor Larimore
*Concentrate on savings rates and not return rates
jebmke
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by jebmke »

Booglie wrote: Thu Dec 02, 2021 8:39 am What if you see the market drop 30%-50% in a single month and the FED doesn't step in?
The market dropped 22% in one day in October, 1987. I don't recall if the FED stepped in or not - I don't think so. Everything turned out fine for most people who didn't panic.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Ramjet
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Ramjet »

Me being not very close to retirement has prevented behavioral mistakes so far
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CyclingDuo
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by CyclingDuo »

Booglie wrote: Thu Dec 02, 2021 6:05 amSo, everyone, I would like your input. Do you agree with my views? If not, how to reduce risk for sure in the current environment while still achieving room for portfolio growth?
There is a lot to unpack there, so I'll keep it simple and point you in the direction of some places to start unpacking.

Some suggestions for you:

Gander at Anthony Isola's index card. Anthony is an advisor @ Ritholz Wealth Management...

Image

This blog post helps unpack the index card above:
https://www.focusfinancialadvisors.com/ ... orrection/

Read Morgan Housel's excellent book The Psychology of Money...
https://www.amazon.com/Psychology-Money ... B084HJSJJ2

Study as much of the Boglehead Wiki as you can. Start with the Boglehead Investment Philosophy...
https://www.bogleheads.org/wiki/Boglehe ... philosophy

If you have done all of this and still have yourself twisted into knots to the point you are constantly using over-activity, you may be a good candidate to have somebody else professionally manage your portfolio. Or at least meet with an hourly fee only advisor to help guide you to an AA and strategy that meets your needs to help prevent the over-activity it appears you are engaging.

CyclingDuo
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7eight9
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by 7eight9 »

jebmke wrote: Thu Dec 02, 2021 8:57 am
Booglie wrote: Thu Dec 02, 2021 8:39 am What if you see the market drop 30%-50% in a single month and the FED doesn't step in?
The market dropped 22% in one day in October, 1987. I don't recall if the FED stepped in or not - I don't think so. Everything turned out fine for most people who didn't panic.
In a statement on October 20, 1987, Fed Chairman Alan Greenspan said, “The Federal Reserve, consistent with its responsibilities as the Nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system” (Carlson 2006, 10). Behind the scenes, the Fed encouraged banks to continue to lend on their usual terms. Ben Bernanke, writing in 1990, noted that “making these loans must have been a money-losing strategy from the point of view of the banks (and the Fed); otherwise, Fed persuasion would not have been needed. But lending was a good strategy for the preservation of the system as a whole” (Bernanke 1990). According to Bernanke, the 10 largest New York banks nearly doubled their lending to securities firms during the week of October 19 even though discount window borrowings didn’t themselves increase (Garcia 1989).
https://www.federalreservehistory.org/e ... sh-of-1987
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Booglie
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Booglie »

jebmke wrote: Thu Dec 02, 2021 8:57 am
Booglie wrote: Thu Dec 02, 2021 8:39 am What if you see the market drop 30%-50% in a single month and the FED doesn't step in?
The market dropped 22% in one day in October, 1987. I don't recall if the FED stepped in or not - I don't think so. Everything turned out fine for most people who didn't panic.
History rhymes, but it doesn't repeat itself. A few big differences are:

1. The US market was growing at a higher rate in 1987 than it is now.

2. I see there was a post stating that market intervention did occur in 1987 (through loan encouraging). But the thing is, the degree of intervention in 1987 was much lower than it is now. The market eventually recover *because* the money printing was not so great as it is now.

So I think one big issue is that investors forget that risk is risk. Just because the market fell 30%, it doesn't mean it has to come back. Yes, historically it has, but there is no guarantee that it should. The market doesn't owe us anything.

But of course, I don't expect people to accept this. Investors tend to have a "naturally" hopeful mindset (otherwise, most people wouldn't take the risks they take now).
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Portfolio7
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Portfolio7 »

For me, I think the key elements are:
1. Having a plan (IPS or simply an intention). For me, a lot of this is predicated on understanding my portfolio and why I structured it as i did.
2. Rebalancing bands. I use 5%. I love that I can do something productive in a crash (and I'm happy to manage risk in a bull market.) I apply the 5% on my Equity/Bond ratio. I don't worry about type of equity or type of bond, I just scale those proportionately.
3. Knowing my nature. I'm usually pretty easy-going, but I have a strong desire to manipulate my investments. I also know this is likely to be harmful. Therefore I give myself boundaries within which I can manipulate a small portion of my portfolio. Most years I make about 20 basis points more than my benchmark, so I feel justified in continuing. Continuing allows me to satisfy my need for control. I've also noticed that when the stakes get higher, so does my fail rate. This keeps me happily focused on my little pool of decisions; I'm not tempted to exceed my boundaries. My goal is simply to get that 20 basis points every year. The illogic of doing that work for so little gain is obvious, but also beside the point. The point is to deal with the emotions that drive you to make big mistakes.
4. Charlie Munger's comment: "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." I will sometimes get a bright idea about investments with a lot of potential. Then I think about this comment and what might go wrong. Very soon these bright ideas lose their luster, and I'm happy side-stepping another bad idea.
"An investment in knowledge pays the best interest" - Benjamin Franklin
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Mullins
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Mullins »

1. Having a plan in place, because it's all been thought through in advance with plenty of time and care given to it.

2. Not letting thoughts of FOMO or fear of loss or whatever dwell in my head. Thoughts create corresponding emotions, the emotions fester, then those emotions need to be released, and that's when bad decisions happen. Self-control of what you choose to focus on is a great discipline to have. As someone once put it:

"You can't stop a bird from landing on your head. But you can stop them from building a nest there."
"The Quality of the Answer Depends on the Quality of Your Question."
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by shess »

Portfolio7 wrote: Thu Dec 02, 2021 10:59 am 4. Charlie Munger's comment: "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." I will sometimes get a bright idea about investments with a lot of potential. Then I think about this comment and what might go wrong. Very soon these bright ideas lose their luster, and I'm happy side-stepping another bad idea.
https://realmoney.thestreet.com/article ... -investing
This difference between amateurs and pros was discussed in 1973 by Simon Ramo in his book Extraordinary Tennis for the Ordinary Player. Ramo found that in an amateur game of tennis, about 80% of points are a product of a mistake by the opponent while in a professional game about 80% of points are a result of making winning shots.
At least for me, part of what weaned me away from clever investing ideas was being part of a financial mailing list at a company filled with cream-of-the-crop engineers. There's nothing like seeing someone smart in one area making dumb decisions in another area to make you question what kinds of decisions you've been making outside your area of expertise.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Apathizer »

VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
Yeah, that's why I think one-decision auto re-balance funds like Life Strategy and target date funds have become so justifiably popular. Just make deposits and withdrawals as wanted and needed. I'm still in my accumulation stage, but when I hit my retirement target I'll probably move everything into something simple like VSMGX or VSCGX.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
abc132
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by abc132 »

I make investing decisions independent of what I think the market will do.

This has cost some potential gains while preventing some potential losses. I may need to work an extra year or two for that diversification, but it is a small price to pay if it helps ensure I can retire before I can obtain an AARP card.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Freefun »

Lifestrategy fund
Remember when you wanted what you currently have?
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Elsebet
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Elsebet »

I'm honestly puzzled myself why the market drops every time a new COVID variant comes out - did no one learn from the March 2020 drop and the Delta drop? The timing of the Omicron drop was a bonus for me because it lined up with my monthly roth/taxable contributions.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Booglie »

Elsebet wrote: Thu Dec 02, 2021 1:21 pm I'm honestly puzzled myself why the market drops every time a new COVID variant comes out - did no one learn from the March 2020 drop and the Delta drop? The timing of the Omicron drop was a bonus for me because it lined up with my monthly roth/taxable contributions.
Smells like manipulation, to be honest. And sometimes, they press really hard.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by balbrec2 »

Have an investment plan, which includes an AA that works for you, and follow it.
Doesn't cost anything beyond fund fees.
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David Jay
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by David Jay »

steve r wrote: Thu Dec 02, 2021 7:59 am
David Jay wrote: Wed Dec 01, 2021 4:23 pm IPS (Investment Policy Statement). And committing to strictly follow your IPS.
...
Got it, to avoid making behavioral errors commit to not making behavioral errors.
I acknowledge the snark, but the written component is important, put down in text form when the waters are calm, to refer back to when waters are roiled.

When the markets go crazy it is possible for the Gut to overwhelm the Head. Referring back to a written statement to remind ones-self of the plan can be a stabilizing influence. Simply put, a written statement is not the same as carrying your plan around in your head.
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blaugranamd
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by blaugranamd »

jebmke wrote: Thu Dec 02, 2021 6:23 am
blaugranamd wrote: Thu Dec 02, 2021 6:03 am
jaqenhghar wrote: Wed Dec 01, 2021 5:22 pm Don't look at accounts on the days the stock market is down.
Better yet, avoid knowing what the stock market does, period
The day the market dropped 22%, most investors had no idea so they couldn’t even buy the dip. :beer
That's the goal
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---
Fallible
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Fallible »

VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
It's not easy, but behavioral mistakes can be prevented by learning what they are in general, how they affect investing decisions, and in the process becoming aware of our own mistakes. The awareness, hopefully, leads to prevention, such as your being aware of your day-trading risks and then buying only mutual funds.

As for what these preventive measures "cost," can you provide an example of costs you're referring to? If you are thinking that you'll lose day-trading money to the fund approach, it's good to know that the fund approach (assuming long term) can save you money that can so easily be lost to short-term day-trading.

Here's the wiki's "Behavioral pitfalls" page:

https://www.bogleheads.org/wiki/Behavioral_pitfalls
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
DouroBound
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by DouroBound »

I tinker with my AA “glide path” all the time, but my tinkering only affects my future AA … never the current year’s. So when I get to my annual rebalancing and AA reset, I might drop from 74/26 to 72/28 instead of to 73/27. Or I might stick with 74/26 if growth the prior year was weak. So the urge to tinker, which is a behavioral mistake I’m prone to, only results in incremental and infrequent shifts, if any. I also let myself rebalance during the year back to that year’s target AA whenever I want (only within tax deferred), which satisfies my frequent urge to do something but might sometimes cost me gains I’d have if I’d let things run longer.
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by smectym »

Ed 2 wrote: Wed Dec 01, 2021 4:56 pm
VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
Very simple. Do nothing. Use Index funds instead of ETFs . Dollar cost average .
Yes, do nothing.But I break the rule on occasion. And usually, I regret it
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by ApeAttack »

I'm lucky I guess. Once I found this forum and learned that simply buying low-cost index funds (MFs or ETFs) at my comfortable AA would do better than most actively managed funds and day traders, I felt no need to do anything else. I'll play the odds and not try to beat the market.

I just keep maxing out my tax-advantaged accounts each payday. Since I'm in accumulation mode, I hope the market goes down so I can get a better deal.
May all your index funds gain +0.5% today.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by loghound »

Others have mentioned I'm sort of wired to not look at accounts in bad times.... (I'm too sad!)

It's generally served me well...
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steve r
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by steve r »

David Jay wrote: Thu Dec 02, 2021 6:55 pm
steve r wrote: Thu Dec 02, 2021 7:59 am
David Jay wrote: Wed Dec 01, 2021 4:23 pm IPS (Investment Policy Statement). And committing to strictly follow your IPS.
...
Got it, to avoid making behavioral errors committ to not making behavioral errors.
I acknowledge the snark, but the written component is important, put down in text form when the waters are calm, to refer back to when waters are roiled.

When the markets go crazy it is possible for the Gut to overwhelm the Head. Referring back to a written statement to remind ones-self of the plan can be a stabilizing influence. Simply put, a written statement is not the same as carrying your plan around in your head.
I fully believe that the IPS strategy helps (most). :beer In the end, what we are talking about here is human behavior. If it works for anyone, stick with it!

I do wonder the following (not enough to set up a new post), which is somewhat related. In terms of asset allocation:

What fraction of the time do you feel you are over-allocated (in stocks), under allocated, and properly allocated?:

For me (make shift answers), it is 40 percent over / 40 under / 20 just right (maybe a touch higher, like 25). I take comfort in the first two numbers being equal -- which in turns helps me stay the course and this is important (behaviorally). But it still means 75 to 80 percent of the time I am nervous. A behavioral YIKES.

I am wondering what it is for others? Perhaps for those who set it and forget it .... 5 / 5 / 90? IDK. Maybe 0 / 0/ 100. Just curious. My guess is many will be around 33/33/33. But again, IDK.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Nowizard »

Booglie: Of course, you are correct, and individual circumstances both support and refute general statements in terms of most complex issues. In the case of anxiety, you have described valid reasons to be anxious. The statistical data support that staying the course is the overall best approach to that anxiety, however, though not necessarily in a given, individual circumstance such as recognition that one's risk tolerance is less than their current allocation's risk. When experienced normally and logically regarding a situation, anxiety is our friend in that it cues us to evaluate. Our evaluation may lead to no decision (Staying the course), an analytically supported response or an anxiety driven response that produces random results.

Tim
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by UpperNwGuy »

Here's what I do:
1. Make a good (and simple) plan, and don't change it.
2. Stick to the plan no matter what happens with inflation, with bond yields, with stock valuations, with factors, with US vs ex-US, or with market ups and downs.

I check my accounts daily to see what is going on.
I do not automate my purchases.
I manually purchase on the first or second trading day of every month.
I'm entirely in taxable, so I rarely rebalance, as that creates realized gains.
I rarely tax loss harvest.

In summary, I accept what the market gives, I do not try to optimize, and I seek to minimize transactions.
Fallible
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by Fallible »

VTI wrote: Wed Dec 01, 2021 5:31 pm
iceport wrote: Wed Dec 01, 2021 4:18 pm
VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
Okay, that's fine. That could possibly avert hyperactive day-trading. But I'm not sure how that helps the kinds of behavioral mistakes that seem to be more common around here.

How does that help you avoid adjusting your AA based on your near-term expectations of the market (market-timing)?

How does that help you avoid convincing yourself there's a valid rationalization for increasing allocations to assets that have appreciated recently, and decreasing allocations to assets that have tanked recently (performance-chasing)?

How does that keep you from ad hoc "rebalancing" whenever you feel like it, even if your formal rebalancing triggers have not been met?

I can think of no cost involved in doing nothing, but I also can think of no easy way of doing it. It takes a lot of practice, patience, and faith in the fact that earning the broad market returns — nothing more and nothing less — will result in superior performance and success in reaching financial goals.
The answer to all your questions is: By holding mutual funds, I'm not allowed to make rash, intraday decisions.

I'm forced to breathe and think about what I want to do. It's not perfect, but it helps noticeably!
OP, if it "helps noticeably," i.e., if it works for you, it doesn't have to be perfect (what is?). Also note John Bogle's quote in my signature line below.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
stan1
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by stan1 »

Establish and stick to an asset allocation.

If you like to tinker, do things like tax loss harvesting which gives you something to do on days when the market is down.

If you can't stick to an asset allocation by yourself consider using Target Retirement funds, LifeStrategy funds, or an advisor who believes in sticking to an asset allocation. In those options you pay more in expenses but would likely still come out ahead rather than buying high and selling low or leaving a significant portion of your assets in cash for years.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by TurtleBeatsHare »

I have a written investment plan. While I can and do reevaluate that investment plan over time (eg, I’ve increased my international allocation over the years), I only reevaluate and change portions of the plan in years where the change would have been contrary to my overall performance, ie I’d consider reducing international in a year where it outperformed the alternative asset class. This helps to eliminate fear-based decision making and implements changes in a sell-high/buy-low manner.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by VictoriaF »

The question is "How do you personally prevent behavioral mistakes?" Here is what works for me:
1. I have a very low allocation to stocks. I have enough without taking risk. Market declines cannot take me below enough.

2. I satisfy my desire to play with money by opening and closing travel credit cards. As AnnetteLouisan has pointed out in another thread, I am slightly overspending in comparison to paying cash, but that's a small price for playing a game and getting conveniences of various forms of travel status.

3. I use my own spreadsheets for doing my taxes and for various financial logs. This forces me to think about every entry and avoid making serious mistakes. This also helps me to anticipate second-order consequences of various financial moves.

4. I record all my expenses into a spreadsheet. It's a well-established habit. When I am about to spend money, I have the subconscious knowledge that I'll be recording this expense and will be judging its merits. This subconscious knowledge keeps me from making silly purchases.

5. I avoid financial advisers as plague. When I contemplate a new type of investment, I spend a lot of time doing my own research and asking the Bogleheads a lot of questions.

Victoria
Last edited by VictoriaF on Fri Dec 03, 2021 6:54 pm, edited 1 time in total.
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Beensabu
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Beensabu »

What kind of behavioral mistakes are we talking about?

Overconfidence?
Recency bias?
Confirmation bias?
Information bias?
Loss aversion?
Mental accounting?
Anchoring?
Hindsight bias?
Restraint bias?

I dunno how many more there are. There's a lot. Tons of ways to screw up.

You can't stop them all. At least keep your hands off your portfolio, by any means necessary. No matter how ridiculous, especially once you realize you have a problem.

For instance, I did 4 things already this year - 1 major AA change and then 1 major intra-asset class change in the Spring, 1 rebalancing in the Summer, and 1 dinky inconsequential thing to make me "feel better" in the Fall. That's too much. I know it.

So now I have a rule for when I'm allowed to rebalance that doesn't even allow for as frequently as annually, and another for when I'm allowed to make AA changes that gives me only a couple opportunities for the rest of my life. It's a silly rule, but a simple one, and a rule's a rule.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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arcticpineapplecorp.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by arcticpineapplecorp. »

Activesloth wrote: Wed Dec 01, 2021 9:15 pm I prefer locking on to a buy price, so I use etfs as much as possible. I got burned in 2020 when I purchased $100k worth of a mutual fund, and the market rallied at closing time. Before that, the market moved sideways all day until the last half hour. Ended up paying $40k more than I wanted to. I like the agility that comes with etfs, but I generally buy and hold.
I'm not sure I understand this for two reasons:

1. when you buy a mutual fund you aren't saying how many shares you want to buy. You are saying how many dollars you want to invest. If you place your order for $100k, you get the number of shares that $100k will buy you at the NAV at the close of day. If the market moved up before the end of the day, you would have wound up buying less shares for your $100k, but you still would have only paid $100k.

It is possible to pay more MONEY with an ETF (not a mutual fund) because with an ETF you say how many shares you wish to buy at a particular price, but if you set a market order you could wind up buying the number of shares you requested at a higher price than you intended. And that would cost you more actual money.

So are you sure what you say happened actually happened because I'm not sure how it would have unless I'm missing something.

2. If you say you intended to buy $100k worth of shares and wound up buying $140k worth of shares, you're saying the market moved up 40% during a rally at closing time?

Can you point to a day in 2020 (or any day in history) where the market gained 40% just at the end of a trading day due to a rally?

The market's average has been 10% a year since 1926. I find it hard to believe the market ever went up 40% in a single day. (except during the flash crash of 2010) and that only affected ETFs, not mutual funds. The largest one day increase (not including flash crash) was 15.34% in 1933:
https://en.wikipedia.org/wiki/List_of_l ... al_Average
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by mikejuss »

I believe that Odysseus had himself chained to the mast of his ship, so as not to be driven mad by the Sirens' song. I do likewise. But in my case, this takes the form of buying more index funds and resisting the songs of the financial Sirens who tempt me with promises of returns that exceed those of the market.
Last edited by mikejuss on Fri Dec 03, 2021 10:18 pm, edited 2 times in total.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by arcticpineapplecorp. »

mikejuss wrote: Fri Dec 03, 2021 10:07 pm I believe that Odysseus had himself chained to his mast, so as not to be driven mad by the Sirens' song. I do likewise.
he wanted to hear the siren's song. It was driving him mad and he was telling his crew to steer the ship to the siren's island. fortunately, he had the foresight to not only chain himself to the mast, but to plug the crew's ears with wax so they wouldn't hear either the siren's song, or Odysseus' orders which would have crashed the ship onto the rocks and killed them all. What the Sirens had done many times before with other sailors.

So, the metaphor is to plug your ears so as to not be persuaded by all the financial noise that bombards us on a daily basis, which is only encouraging us to do something, to change whatever we're doing and "veer us off course."

Stay the course instead and avoid temptations and danger that comes from straying from one's path.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by mikejuss »

arcticpineapplecorp. wrote: Fri Dec 03, 2021 10:13 pm
mikejuss wrote: Fri Dec 03, 2021 10:07 pm I believe that Odysseus had himself chained to his mast, so as not to be driven mad by the Sirens' song. I do likewise.
he wanted to hear the siren's song. It was driving him mad and he was telling his crew to steer the ship to the siren's island. fortunately, he had the foresight to not only chain himself to the mast, but to plug the crew's ears with wax so they wouldn't hear either the siren's song, or Odysseus' orders which would have crashed the ship onto the rocks and killed them all. What the Sirens had done many times before with other sailors.

So, the metaphor is to plug your ears so as to not be persuaded by all the financial noise that bombards us on a daily basis, which is only encouraging us to do something, to change whatever we're doing and "veer us off course."

Stay the course instead and avoid temptations and danger that comes from straying from one's path.
Yes, he wanted to hear their songs, but he took precautions so as not to be deranged by them. May we all be so wise and forward-thinking as we navigate our way across the financial media landscape.
Last edited by mikejuss on Fri Dec 03, 2021 10:27 pm, edited 3 times in total.
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arcticpineapplecorp.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by arcticpineapplecorp. »

mikejuss wrote: Fri Dec 03, 2021 10:20 pm
arcticpineapplecorp. wrote: Fri Dec 03, 2021 10:13 pm
mikejuss wrote: Fri Dec 03, 2021 10:07 pm I believe that Odysseus had himself chained to his mast, so as not to be driven mad by the Sirens' song. I do likewise.
he wanted to hear the siren's song. It was driving him mad and he was telling his crew to steer the ship to the siren's island. fortunately, he had the foresight to not only chain himself to the mast, but to plug the crew's ears with wax so they wouldn't hear either the siren's song, or Odysseus' orders which would have crashed the ship onto the rocks and killed them all. What the Sirens had done many times before with other sailors.

So, the metaphor is to plug your ears so as to not be persuaded by all the financial noise that bombards us on a daily basis, which is only encouraging us to do something, to change whatever we're doing and "veer us off course."

Stay the course instead and avoid temptations and danger that comes from straying from one's path.
Yes, he wanted to hear their songs, but he took precautions so as not to be deranged by them. May we all do likewise in the face of the financial media.
amen.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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steve r
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by steve r »

arcticpineapplecorp. wrote: Fri Dec 03, 2021 10:13 pm ...
So, the metaphor is to plug your ears so as to not be persuaded by all the financial noise that bombards us on a daily basis, which is only encouraging us to do something, to change whatever we're doing and "veer us off course."
..
I love this.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by wrongfunds »

You either have resigned to the fact that in the long term you will NOT beat the market or you still believe you are smarter than the average investor and will be able to get returns which are better than the market. If you are in the later category, there are no preventive measures. Sorry.

If you are in the former camp, you put all the transactions on autopilot and realize that is the best that you can do and essentially do nothing.

It took a decade or two before I was able to move to the former camp from the later camp and only after getting burned badly. Your mileage may vary.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by livesoft »

There are three main things that I do to prevent behavioral mistakes:

1. I tax-loss harvest whenever I can in my taxable account. This avoids the behavioral mistake of fear of losses and hanging on to losers. In reality, I am using index funds, so it is not quite the same as holding on to a loser liker Enron or Worldcom. But I have no fear of losses.

2. I use my RBD strategy to make sure I am forced to buy some equity shares when they have dropped significantly in value. I do not act like a deer in headlights when the bottom is falling out of the market. This also means that I rebalance at appropriate times and have no fear of losses.

3. I track my portfolio against suitable benchmarks. Since several passively-managed mutual funds have more or less fixed 60/40 asset allocations, I have settled on my portfolio having more or less 60/40 asset allocation. Thus, I can compare my portfolio directly to benchmarks. Of course, that also means that I am not guessing about my portfolio performance nor using wishful thinking nor Beardstown Ladies math with it.

BTW, there is quite a lot of difference between "beating the market" and "beating a benchmark."

ETFs should not increase behavioral mistakes over mutual funds.

I consider it a behavioral mistake to do nothing when equities drop quite a lot in value such as in March 2020.
Last edited by livesoft on Sat Dec 04, 2021 9:10 am, edited 2 times in total.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by wander »

I do nothing so I won't make mistake.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by sandan »

I like the vanguard logo.

Even if the sailboat has to change direction, I can't turn it too fast.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by invest2bfree »

VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
Know your Risk Limitations.

I thought I had high risk tolerance, I was running for the hills with 5% draw down.

So now I have healthy dose of bonds with a 60/40 allocation.

Second is Iam moving towards a one fund option.

VSMGX or AOR, went with AOR with no trading fee at Fidelity.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Dennisl »

I automate so that I don’t try to market time. I use TDF and VG life strategy funds so that I’m not tempted to tweak AA based on whims/articles.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Uncle Morris »

Seeing the various replies from better and wiser investors than I am about the steps they take to try to prevent behavioral mistakes, I am convinced to go the one-fund route: viewtopic.php?f=10&t=287967.

I'm currently doing the three-fund plan, but realize that one fund with all the diversification and rebalancing built in will do the trick for me at the nominal price of maybe ten basis points.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by Jimsad »

By posting here when I feel myself straying or am not sure .
Most posters are helpful and I ignore the few snarky comments
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Re: How do you personally prevent behavioral mistakes? Does your prevention involve any cost?

Post by Ed 2 »

smectym wrote: Thu Dec 02, 2021 11:06 pm
Ed 2 wrote: Wed Dec 01, 2021 4:56 pm
VTI wrote: Wed Dec 01, 2021 3:43 pm To prevent myself from day-trading ETFs, I only buy mutual funds. This comes at the expense of some tax efficiency (though many index mutual funds are impressively tax efficient).
Very simple. Do nothing. Use Index funds instead of ETFs . Dollar cost average .
Yes, do nothing.But I break the rule on occasion. And usually, I regret it
I break too , I am buying also whenever I have extra cash, but I don’t regret.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by jebmke »

Uncle Morris wrote: Sun Dec 05, 2021 4:20 pm Seeing the various replies from better and wiser investors than I am about the steps they take to try to prevent behavioral mistakes, I am convinced to go the one-fund route: viewtopic.php?f=10&t=287967.

I'm currently doing the three-fund plan, but realize that one fund with all the diversification and rebalancing built in will do the trick for me at the nominal price of maybe ten basis points.
Certainly a good solution in tax advantaged accounts but can wreak havoc in a taxable account.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by jebmke »

skierincolorado wrote: Sat Dec 04, 2021 6:11 pm IPS. Write it down.
Exactly. The way to avoid behavioral mistakes is to not make them. Setting out a plan should define the guardrails. After that, all is needed is a bit of self discipline. Think of the IPS as the center line on a two lane road.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by burritoLover »

Unfortunately, I don't think there's any way to completely prevent behavioral mistakes. They run rampant even around here - even among those that understand these concepts well - there's always some justification as to why this time is different or why the rules don't apply to their situation. When you are talking finance and investing, it is very easy to come up with rationalizations to what you are doing. I sometimes find myself dishing out advice to new people here that I don't strictly follow myself. Unfortunately, the human experience does not translate to success in investing.
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Re: How do you personally prevent behavioral mistakes? What do these preventative measures cost you?

Post by dcabler »

As others have said - write down an IPS, follow it.

I use a combination of ETFs and Mutual Funds in my tax advantaged account and only an ETF in my taxable account. The specific choices were a combination of indexes I prefer and e/r. I didn't understand ETF's for the longest time and was, frankly, too busy to spend any time on it. Once I did, though, they became a part of what I do.

For the ETF's, other than not trading within the first couple of hours of the trading day and within the last couple of hours trading of the trading day, the main thing I do is look at my calendar the day before and make a calendar entry just for myself. Does two things
1. If I didn't do that, there's a good chance I'd forget to make the transaction. It's happened before.
2. Has a secondary effect of not doing any market timing. I'm not prone to doing that anyway, but if I tell myself I'm going to trade at noon, then I'm going to trade at noon. I always just trade at "market" instead of limits or anything else. Get it done and move on with the rest of the day.

In terms of ETFs vs Mutual Funds, as others have noted there's the tax efficiency part of it. From a "dollars vs. shares" perspective, I'm at Fidelity so I always have the option of dollars for ETFs instead of # of shares. And I always use the dollars option. It's not the only brokerage with this option by the way.

Cheers.
Last edited by dcabler on Thu Dec 09, 2021 6:49 am, edited 4 times in total.
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