The cognitive bias that describes our common tendency to place too much emphasis on one trait or piece of information when making a decision is called anchoring. This occurs during the normal decision making process when we rely too heavily on a specific piece of information which governs our thought process.
Once the anchor is stamped in our mind there is a bias set towards adjusting all information to reflect the anchored information. This cognitive bias is often developed at a young age when it is reinforced through our learning process.
Anchoring has a strong impact on our beliefs about money. The financial decision making process an individual moves through is reflective of their perception of money. For example, a person looks at investing in a company they may focus excessively on a certain element of fundamental analysis and use those criteria as a basis for evaluating the value of the investment, rather than considering all the proper elements of complete due diligence. The bias will cause the investor to view all future information in a manner that reinforces their decision.
These decision traps commonly lead to investors staying too long with an investment as well as developing a very large blind spot with regards to the initial investment decision.
Understanding the psychology of your decision making process will allow you to eliminate pre-conditioned bias’ which reduce your probability of making successful financial decisions. Awareness will also help you develop an objective decision making process.
Scam and fraud victims are manipulated through the knowledge and experience their perpetrators have in the field of psychology. In order to insulate and inoculate yourself fully you must understand the psychology behind your financial decision making process. You don’t stand a chance if you haven’t gained full awareness of your anchors. Believe me when I tell you that the professional scammers and fraudsters will find your anchors very quickly and devise a strategy to use to their best interests.
Your focus points for this concept are simple; return to your journal and review your last 5 investment decisions. Take the time to reflect on the answers to several questions:
1. What is the most important aspect of an investment for me?
2. What is my due diligence process?
3. What must an investment not have that makes me decide to say no?
4. What must an investment have for me to say yes?
5. Why do I want to invest?
The Founder of the Advocacy network has over 35 years experience in the Financial Services, Resort Real Estate, Business Communications and Sales Coaching industries. He has either worked directly or consulted for such notable companies as Northwestern Mutual, Prudential, Metropolitan Life, Lincoln Financial Services, Coldwell Banker, Century 21, Ginn Development Company, Playground (Intrawest), Lennar Homes, Exit Realty, Remax, Merrill Lynch, Tom Hopkins, Brian Tracy and many others. Karl published the “Fabulous Fortunes through F.A.I.L.U.R.E in 2003 and developed small workshops that promoted a fresh perspective on the concept of failure. In 2008 he was asked to be a participating co-author in “The Power of the Platform” other co-authors included Les Brown, Brian Tracy, Jack Canfield, Dr. Tony Alessandra and an impressive list of others. During 30 years of selling and training Karl has won numerous awards including the prestigious MDRT and been selected as a motivational speaker. Karl entered a sales career in order to continue his coaching career in Baseball. He coached at the HS, College and professional levels. During 18 years of coaching he was fortunate to have led 5 teams to championships at different levels including a College World Series appearance. He served as a Coach and a MLB Scout during which time he produced over 65 players that were selected in the MLB Amateur draft. (including his son Chris selected in 1999 by Milwaukee) During all of his experiences Karl has served in the role of advocate for those he represented. The role of an advocate is to help those who desire improvement of skills, position, life style or life experience. Karl has provided this in both the athletic and business arenas. The reason he started the Advocacy Network was to provide clear transparency in the many aspects of financial decisions that will face families, investors and businesses today. Smart decisions about money will entail many needs including insurance, retirement funding, investing, employee benefits, college funding, wealth creation, investment decisions and many other serious financial decisions. Advocacy is the Chinese wall between your best interests and the conscious and unconscious bias of the service providers seeking your dollars. “As your advocate I simply have your best interests in mind at all times, assuring that you get to make smart decisions about money.” __Karl Schilling