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Understanding the role of personal experiences in investment decisions can have several potential benefits. Firstly, it can help investors to recognize and mitigate the influence of cognitive biases on their decision-making processes. These biases, which are often shaped by personal experiences, can lead to suboptimal investment decisions. Secondly, understanding the role of personal experiences can help investors to better align their investment strategies with their personal goals and risk tolerance. Finally, it can also enable investors to learn from their past mistakes and successes, thereby improving their future investment decisions.
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How should investors manage the inevitabilities of risk? What are the most powerful wealth-building tools that require little technical skill? How do...
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Someone's personal experiences make up only a small portion of what happens, but it makes up most of how that person thinks the world works. In theory, financial decisions should be driven by an investor's goals and the characteristics of investment options available to them. Economists from the National Bureau of Economic Research found that instead, investment decisions are anchored by early adulthood experiences. They found that investors tend to weigh more heavily the experience of the economy when they were young than what the economy is like now. Both luck and risk are often the factors that determine success and failure. Because they are hard to measure, they are often discounted. Some of Bill Gate's success can be attributed to hard work and good decisions. Some of it can also be attributed to his going to a high school with a computer. This was a roughly 1 in 1 million chance in the '60s. To account for risk and luck in decisions, an investor should: 1) Avoid idolization of s...
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