3 Mental Traps That Nearly Ruined My Investments

Hey reader,

In 2013, I had my first property under contract - a duplex.

I wanted to learn the process, so I met with the inspector after he spent 6 hours checking out the guts.

He said,

I bought it anyway…

Do you ever wonder why your investment decisions sometimes defy logic?

Early in my career, I found myself making impulsive choices - driven by emotions rather than data.

Discovering the principles of behavioral finance was a game-changer.

Kijpokin Kasemsap’s work shows the principles of 'behavioral finance.'

This is the mental bias that separates "what we should do" and "what we actually do."

The Challenge of Behavioral Biases

In real estate syndication, making sound financial decisions is crucial.

Thanks to our brain biases, that doesn't always happen.

Kasemsap highlights 3 key biases:

• Representativeness

• Overconfidence

• Anchoring

These shortcuts can lead to bad investment choices.

Recognizing these biases is the first step towards better financial decisions - for you AND your investors.

Typical Reactions to Financial Stress

Investors often fall into predictable patterns under stress:

Overconfidence:

Believing too strongly in your knowledge and predictions. You want to prove how great your strategy or market is, so you dismiss good advice.

Sometimes, overconfidence is a fear of failure.

Herd Behavior:

Following the crowd (or the loud, contrarian voice on social media).

Without independent analysis, your human need for connection may cloud your judgement.

Loss Aversion:

Fearing losses more than valuing gains, you miss opportunities. We fear the future because we don't know the outcome.

We falsely believe that keeping things the same will be safe.

Understanding these reactions helps in developing strategies to counteract them.

Immediate Action Steps

Limit Biases

Fortify your buy box:

Create an investment thesis and stick to it. Run your numbers with trusted advisors to reduce bias. Base your investment decisions on thorough research rather than gut feelings.

Make sure every decision is a team effort.

Manage Emotions

Guard your heart:

Market conditions and deals change. Inevitably, our feelings hop on for the ride. Practice mindfulness techniques to stay calm and focused.

I imagine myself sitting on a beach watching the waves crash and the palm trees swaying in the breeze.

Take breaks during high-stress periods to avoid impulsive decisions.

Follow a Process

Handle your research:

Use checklists for everything - market analysis, due diligence, vetting lenders. Templatize it all.

Develop a detailed investment plan and stick to it, regardless of market fluctuations.

Diversify your portfolio to reduce the impact of emotional reactions.

The Impact

When it comes to investment decisions and cognitive biases, listen to Offspring's advice.

You gotta keep ‘em separated.

You'll reduce your pain and feel more in control. And that's how you build an empire with passive income to share.

Here's to smarter investment decisions!

All the best,

Chris

Chris

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