Tip for Investors: Think Slow When It Comes to Investment Expectations

April 3, 2018

Many years ago, in a letter to investors, Warren Buffet said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”  Since then, this has become one of the most famous expressions within the investment community. The reason it has garnered such broad appeal is that the message is profoundly simple to understand, while simultaneously being very difficult to execute in an investment portfolio. The media is a major factor. News volume is higher than ever, and, with the advent of social media, news velocity is higher than ever. Studies in behavioral psychology have shown that this method of distribution overwhelms the emotional response in the brain, which, in turn, can lead to overreaction (and too much action). Investing under this pretense can also lead to a sub-optimal result. Stymieing this conflict and planting your tree is much easier said than done, but it is a worthwhile endeavor when it comes to ideal decision-making in investing. See “Thinking Fast and Slow” by Daniel Kahneman for a Nobel Prize winner’s work on the subject.