8 Cognitive Biases & How to Overcome Them | Signal or Noise Ep 29 | Charlie Bilello | Peter Mallouk

Summary

本期《信号还是噪声》第29集中，主持人Charlie Bilello与Peter Mallouk探讨了投资者常见的八种认知偏差及其克服方法，分析了401(k)计划中自动增加缴费比例的趋势，以及当前成长股与价值股的相对水平，指出市场极端现象。他们强调认知偏差对投资决策的影响，提倡投资者应通过自动化、计划和多元化来规避这些偏差，同时对市场趋势保持警惕。

Takeaways

• 🧠 认知偏差是投资中不可避免的，即使意识到它们，人们仍然很难完全避免受其影响。
• 🚢 锚定偏差是投资者最常见的偏差之一，它导致人们过分依赖首次获得的信息，例如买入价格，而忽视后续变化。
• 🎰 结果偏差是指根据结果而非决策过程来评价决策的好坏，例如根据短期利润来判断投资决策的正确性。
• 🔍 确认偏差表现为人们倾向于寻找和信任那些确认自己现有信念的信息。
• 💡 达宁-克鲁格效应揭示了人们对自己了解不多的事物过于自信，这在投资中可能导致频繁交易和不佳表现。
• 🏠 禀赋效应是指人们对于自己拥有的东西赋予更高的价值，这在房地产市场中尤为常见。
• 🌟 权威偏差导致人们过度信任那些被认为在某一领域具有权威的人物的意见。
• 🎉 从众效应描述了人们倾向于跟随大众的观点或趋势，这可能导致市场出现非理性的繁荣或萧条。
• 🔄 近期偏差是指人们过分重视最近的经验和信息，认为它们会持续到未来，这可能导致对市场趋势的错误预测。
• 📈 投资建议：投资者应首先从自身情况出发，制定投资计划，避免对单一股票或行业过度依赖。
• 📊 401(k)自动增加功能是提高员工储蓄率的有效方式，它利用了人们的惯性，帮助他们为未来储蓄更多。
• 📊 成长股与价值股的比率达到了互联网泡沫以来的最高水平，这可能是一个信号，表明市场未来可能会看到价值股的表现优于成长股。

Q & A

什么是认知偏差，为什么投资者容易受到它们的影响？

认知偏差是人们在做决策时因为心理因素而产生的系统性错误。投资者容易受到它们的影响，因为这些偏差根植于人性，即使意识到它们的存在，人们在实际决策中仍然很难避免。

锚定偏差是如何影响投资者对股票的判断的？

锚定偏差是指投资者过分依赖他们最初接收到的信息，例如购买股票的价格，这会导致他们忽略后续出现的负面信息，希望股价能回到原来的购买价格，从而影响他们的卖出决策。

为什么说结果偏差会导致投资者错误地评估决策质量？

结果偏差是指投资者根据结果而非决策过程来评价决策的好坏。这可能导致他们将偶然的成功归功于自己的技能，而忽视了过程中的潜在错误，从而在未来重复错误的投资决策。

确认偏差在投资中如何体现？

确认偏差是指人们倾向于寻找、解释和记忆信息以确认自己的先入之见。在投资中，这可能表现为投资者只关注支持自己投资决策的信息，而忽视或贬低反对意见。

达宁-克鲁格效应在投资领域中有哪些具体表现？

达宁-克鲁格效应是指能力较低的人倾向于高估自己的能力。在投资领域，这可能表现为一些投资者对自己的投资决策过于自信，导致频繁交易和集中投资，最终可能带来不良的投资结果。

内禀效应在投资决策中如何影响投资者？

内禀效应是指人们对自己拥有的东西赋予更高的价值。在投资中，这可能导致投资者高估自己持有的股票价值，从而不愿意卖出或重新评估其投资决策。

权威偏差在投资中如何误导投资者？

权威偏差是指人们倾向于信任并跟随被认为是权威人士的意见。在投资中，即使这些权威在某些情况下也可能犯错，投资者仍可能盲目跟随他们的建议，导致不良的投资决策。

如何理解从众效应在投资市场中的应用？

从众效应是指人们倾向于遵循大众意见或趋势。在投资市场中，这可能导致投资者在市场高涨时跟风买入，在市场低迷时恐慌性卖出，而不是基于自己的分析和判断做出决策。

近期偏差如何影响投资者对未来市场表现的预测？

近期偏差是指人们倾向于认为最近的事件和趋势将会持续。在股市中，这可能导致投资者在市场下跌后预期进一步下跌，而在市场上涨后预期继续上涨，从而做出非理性的投资决策。

401(k)自动增加缴费比例的趋势对退休储蓄有何影响？

401(k)自动增加缴费比例的趋势有助于员工随着时间的推移增加储蓄额，从而提高他们退休时的财务安全感。这种自动储蓄的方式减少了员工需要做出的决策数量，使他们更有可能积累更多的退休储蓄。

如何看待当前成长股与价值股的比率接近互联网泡沫时期的水平？

当前成长股与价值股的比率接近互联网泡沫时期的水平，这可能表明市场对成长股的偏好过高。虽然不能简单地认为这是一个即将反转的信号，但投资者应该意识到这种极端的比率可能预示着未来价值股的相对表现将会改善。

Outlines

00:00

🎥 认知偏误与投资行为

在《信号或噪声》第29集中，主持人Charlie Bilello和Peter Mallouk探讨了投资者常犯的八种认知偏误，并讨论了克服这些偏误的方法。他们首先提到了锚定效应，即投资者过分依赖首次接收到的信息，例如股票的购买价格，即使后续有更多负面信息出现，投资者仍可能因锚定效应而持有亏损股票。

05:01

📈 投资中的确认偏误与结果偏误

Charlie和Peter讨论了确认偏误，即投资者倾向于寻找信息来确认自己的信念，例如持有的股票。结果偏误则是根据结果而非决策过程来判断决策的好坏，例如投资者可能因为偶然在meme股票上获利而认为这是一个好的投资策略。

10:02

🏠 投资与生活中的邓宁-克鲁格效应

邓宁-克鲁格效应指的是人们在对某事了解不多时往往高估自己的能力。在投资领域，这种过度自信往往导致频繁交易和较差的投资表现。Charlie和Peter指出，即使是专家也可能因为这种效应而做出错误的预测或投资决策。

15:03

🤔 内省偏差与权威偏差

内省偏差涉及投资者对自己的过度自信，而权威偏差则是投资者倾向于信任那些被认为在某一领域具有权威的人物的意见。Peter提到，即使是领域内的专家，如财政部长耶伦和美联储主席鲍威尔，也可能因为权威偏差而做出错误的经济预测。

20:03

🚂 从众效应与近期偏差

从众效应描述了人们倾向于跟随大众意见或趋势的现象，而近期偏差则是给予最新信息或经验过多的权重。Charlie和Peter讨论了这些偏差如何影响投资者的决策，例如在科技股表现出色的时期，投资者可能会过分关注近期的成功而忽视了长期的投资策略。

25:05

📊 投资策略与行为金融学

Charlie和Peter强调了制定投资策略的重要性，并建议投资者从自身需求出发，考虑资产配置和风险管理。他们还讨论了行为金融学如何帮助投资者识别和克服常见的认知偏差，以及如何通过自动化投资和寻求专业建议来避免情绪化决策。

30:05

💼 401(k)计划的自动增加与员工参与度

讨论了401(k)退休计划的自动增加功能如何提高员工的参与度和储蓄率。数据显示，自动注册和自动增加功能使得更多的员工参与到401(k)计划中，并且平均储蓄率达到了历史新高。Charlie和Peter认为这是帮助员工实现财务独立的重要发展。

35:05

📉 成长股与价值股的历史对比

在节目的最后，Charlie和Peter分析了当前成长股与价值股的表现比例，指出这一比例达到了自2000年.com泡沫以来的最高水平。他们讨论了这一现象可能预示着市场风格的转变，并分享了他们对于未来投资策略的看法，强调了在投资组合中保持多样化的重要性。

Keywords

💡认知偏差

认知偏差是人们在思考和决策过程中由于心理因素而产生的系统性误差。在视频中，讨论了投资者如何因为认知偏差而影响投资决策，例如锚定效应、结果偏差等，这些偏差是影响投资者理性判断的重要因素。

💡401(k)计划

401(k)计划是美国一种由雇主提供的退休储蓄计划，员工可通过该计划进行税收优惠的储蓄。视频中提到401(k)计划的自动注册和自动增加储蓄比例的趋势，这些变化有助于提高员工的储蓄率和退休准备。

💡信号与噪声

信号与噪声是投资领域中的一个概念，用来区分市场中真正的价值信号和短期的、无关紧要的噪声。视频中讨论了如何识别并区分市场中的信号与噪声，以及它们对投资决策的影响。

💡锚定效应

锚定效应是指人们在做决策时过度依赖（或'锚定'）于第一次接收到的信息。视频中以Nikola股票为例，说明了投资者如何因锚定于购买价格而影响其卖出决策。

💡结果偏差

结果偏差是指人们根据结果而非决策过程本身来评价决策的好坏。在视频中，通过meme股票的例子，讨论了投资者如何错误地将偶然的盈利结果归因于自己的投资技能。

💡确认偏误

确认偏误是指人们倾向于寻找、解释和记忆信息以证实自己的先入之见或信念。视频中讨论了投资者如何在持有某个股票头寸时，只寻找和关注支持自己观点的信息，而忽视相反的证据。

💡达宁-克鲁格效应

达宁-克鲁格效应是指在某些领域知识较少的人倾向于高估自己的能力。视频中提到，过度自信的投资者往往交易更频繁，但实际的投资表现却较差。

💡内禀效应

内禀效应是指人们对自己拥有的物品赋予更高的价值。视频中通过人们对于自己家中的过度估值为例，说明了内禀效应如何影响资产的定价和交易。

💡权威偏误

权威偏误是指人们倾向于过度信任或依赖那些被认为是权威或专家的意见。视频中提到了即使是财政部长和前美联储主席等权威人士，在预测通胀等问题时也可能出错。

💡从众效应

从众效应是指人们倾向于采纳流行的意见或追随趋势。视频中讨论了从众效应如何影响投资者的行为，例如在加密货币市场中，价格上涨时大家纷纷涌入，价格下跌时则纷纷撤离。

💡近期效应

近期效应是指人们倾向于过分重视最近的事件或信息，并预期这些情况会持续到未来。视频中通过Vanguard的投资者调查为例，说明了投资者如何因为近期市场下跌而预期未来市场表现不佳，这与实际市场反弹的情况相反。

Highlights

讨论了八种投资者常见的认知偏差以及如何克服它们。

401(k)计划中雇主初始设定的缴费比例提高，对储蓄率的影响。

市场极端现象与2000年3月互联网泡沫时期的增长股和价值股的相对水平比较。

锚定偏差：投资者如何过分依赖首次获得的信息。

如何通过认识到自己的认知偏差来尝试自我识别和克服。

结果偏差：根据结果而非决策过程来评判决策。

确认偏差：倾向于寻找和信任确认自己现有信念的信息。

达宁-克鲁格效应：在了解不多的领域高估自身能力。

内源效应：拥有某物时过高估值的心理现象。

权威偏差：过度信任所谓权威的意见。

乐队效应：跟随流行观点或趋势的心理倾向。

近期偏差：过分重视最新信息或经验。

投资者如何通过自动化和计划来避免情绪驱动的决策。

401(k)自动注册和自动增加缴费比例对员工储蓄率的积极影响。

增长股与价值股的比率达到2000年3月以来最高，对未来投资的启示。

对当前市场状况下，是否应将价值股排除在投资组合之外的看法。

回顾历史数据，分析增长股和价值股的未来可能表现。

提供给观众的免费Wealth Path Analysis服务，帮助评估投资组合和税务情况。

Transcripts

(dramatic music)

- Hello, hello everyone.

Welcome back to another edition of Signal or Noise?

This is episode 29.

Charlie Bilello here, and with me as always, Peter Mallouk.

Peter, a lot of fun topics to talk about today.

We're gonna start off with a tweet of yours that went viral,

talking about cognitive biases,

and we'll discuss some ways to overcome them.

We're gonna talk about eight cognitive biases

that investors all fall prey to.

No one's immune to this,

so this will be an interesting discussion.

Number two, the 401(k) contribution nudge,

interesting things going on in the 401(k) world

in terms of what the setup is for employers.

It used to be a much lower initial startup percentage,

and today it's much higher.

So we'll discuss whether that's a good thing

and what that's doing to savings rates in the 401(k) world.

And we'll end as we always do,

talking about signal or noise.

A lot of extremes going on.

I don't know if you've noticed, Peter, in markets,

a lot of comparisons to March, 2000

and we got a big one here talking about

growth stocks versus rally stocks

at their highest relative levels since March, 2000,

the peak of the .com bubble.

So that'll be a fun one.

All right, let's start out with eight cognitive biases

and how to overcome them.

It started out with your tweet here,

an excellent breakdown of cognitive biases.

A lot of people commenting on these,

and I think the temptation is, we read this, we think,

well, if I understand what these are and I know about them,

well then I can avoid them falling prey to them

in terms of my own behavior in investing.

And do you think that's actually the case,

or does it prove to be much harder than that in reality?

- I think the reality is most of us, no matter,

even when we're aware of them, we are just,

it's such a human, such a big part of human nature

to cave into these.

I mean all of us do.

It does help to be aware of them

and to really be able to try to self-identify it.

But I think it's incremental.

And I think the reality is cognitive biases drive the world.

I mean they're very, very powerful.

- 100%.

So we'll try to give our best tips

for avoiding 'em at the end of this.

But let's start out breaking these down.

Number one, the anchoring bias,

which is you're relying heavily

on the first piece of information you receive.

And we see this a lot in investing,

and I'm sure you see this with clients.

I think the best example, and you could pick any stock,

they fall in love with the stock

and they fall in love with the price

that they entered into it.

So if we're buy a stock,,

this is the example here is Nikola, right?

They bought it during the 2020 boom.

They heard a lot of good things.

It was a hot stock, promising stock in the EV space,

and they're anchored to that purchase price.

And it looks crazy 'cause it's over 2000 that,

but that's because this stock reverse split

so many times since then.

But they're hoping for that stock then

to get back to that price, they're anchored to that price

and they're ignoring kind of all of the information,

negative information that has occurred

since that point in time.

How do you talk people through this anchoring bias

in terms of falling in love with the stock

and ignoring kind of all evidence

showing that it's time to sell this position?

- Yeah, I mean there's a saying that the,

you can love a stock all you want,

it's not gonna love you back, right?

And that's, I can't remember who said it,

but that's definitely true.

But we are all married to whatever we buy in at.

That just becomes some magic number.

It's completely arbitrary, of course,

because throughout the year,

it's got a thousand different prices.

But the price you buy it at,

that's the price that all your psychology is tied to.

If it's below that price,

you want to stay in until you break even, right?

You can hear all the listeners going,

oh yeah, break even.

Just like if you're at a table in Vegas, you're down.

You are anchored to the dollars you entered with.

If you started with $500 and you're at 300,

you are thinking about getting back to 500.

That's just human nature.

But anchoring works the other way too.

Like once you get to 500 at the blackjack table,

if you're up to 600, 700, 800 is another bias, right?

It's mental accounting where you start to feel

like you're playing with not your own money,

the house's money.

It's not yours, you bought it at $500.

Everything above, it's not yours.

So you're playing not worrying about it.

So you're, this anchor is a killer.

Because you're above it,

you feel like it's not, you're playing with house money.

If you're below it, you're playing to break even.

This is why people hold stocks too long.

They can't sell.

They become too anchored to that price.

And ultimately it goes up and down,

but people have a hard time exiting,

and most stocks over the long run are losers.

That surprises people.

But over the long run, most stocks lose,

'cause of, you know, the way capital destruction happens

in a capitalist environment

constantly replaced by new companies.

So anchoring, I'd love that you started with this one

'cause I think it's the most powerful bias

when it comes specifically to purchasing stocks.

- Yeah, 100%.

This is a kind of a good example for investors

because there was so much information

that came in after that mania phase in 2020

that where you would've said,

hey, maybe something is different here

in terms of my initial thesis,

and with Nikola, there was a lot of accusations of fraud.

And then it actually turned out to be true,

and this was in, I think September, October, 2020

when it was kind of revealed that they did this video

of one of their trucks

supposedly powered by this EV technology,

but they actually uncovered

that they just rolled the truck down a hill,

and this, they made it look like

it was actually using that technology and it wasn't.

And they slapped kind of the logos on there.

And the founder of this company

actually was convicted subsequently,

and I think is serving prison time for.

But Peter, that was way back here in 2020.

Yes, you would've taken a loss,

but had you stuck with this stock

and kind of ignored that information

and ignored the fact that this company has never made a dime

to barely produced any vehicles during this period of time.

And it was trading at such a ridiculous valuation

at that point in time,

assuming that there was gonna be

just this massive production,

all of that was ignored because of that anchoring position.

- Yeah, it's killer, killer, killer component of investing,

by far the biggest cognitive bias

when it comes to the stock market.

- And then we see it on the upside too, by the way.

Like you're buying a stock or an index,

and you say, well, it can't possibly go higher,

and I'm anchored to that initial price

and I don't want to add more.

Well, the stock market tends to go up over time,

so you better not have that tendency to say,

well, I got in 20 years ago,

the stock market's so much lower.

Well today it's much higher,

but yes, profits are higher,

the economy and economic growth has been significant,

so you can't look at it that way as well.

Okay, number two here, outcome bias.

You judge a decision by its outcome,

not the decision making process.

And I wanna talk about meme stocks here,

because we tend to focus on the negative end of things.

And for, yes, for most people it does end badly.

But for a lucky few, Peter, they'll jump into a meme stock

after hearing about it

and they might make a profit on it initially,

and it could have nothing to do

with the decision making process.

Could be a terrible decision.

And I'm looking at here a company

called Faraday Future Intelligent Electric,

another company in the EV space

that hasn't really done anything,

but it became a popular meme stock during the recent craze

with GME and AMC.

I don't know how, what the genesis of that,

but somewhere on some message board somewhere said,

this is the new meme, go ahead and buy it.

And you can see here just the crazy advance that it had,

it went from I think 5 cents to almost $4.

And no doubt there were people in there

who bought it at some point, sold it a few days later

and made a profit.

And the outcome bias is saying, that was a good decision,

so therefore I could do it again.

It comes back down, I'm gonna try to do it again.

And then clearly that doesn't work out for them.

- I mean, you can tell, let's go back to the casino.

I mean if you're teaching somebody to play blackjack, right,

And the dealer has a face card,

and the person you're teaching is showing a six,

you would tell the person showing a six,

you've gotta hit, okay?

The odds, this isn't a great setup,

but the odds are in your favor if you hit

than if you don't hit.

And they don't take your advice,

they don't hit and they win, the dealer busts.

So then they go, oh, I see, I was right.

That person wasn't right, they just got lucky, right?

And you see the same thing with sports

where someone makes a very, very bad decision,

a low probability.

You're going forward on, you know,

fourth and four on your own, you know, 20 or whatever,

at a time in the game when you're not supposed to do it

and you get a good outcome.

That doesn't mean the decision was good, right?

It's all, you really have to look at the process,

not the outcome.

This carries forward, just like you said, Charlie,

into investing.

- The opposite could be true too, for a period of time.

You could have a good process and make decisions

based on a good process.

And the outcome in the short run could be not so good

and you can question that, right?

So it's not just a one way street here,

but clearly that the fact

that you got lucky on something like this,

you shouldn't be saying, well, that's my skill.

This is a good thing to do to buy a stock based on a meme.

And when I tweeted out

and wrote about this story of Faraday Future,

of course I have people emailing me, telling me,

you don't understand the fundamentals of the company.

So I said, well, let's look into

the fundamentals of the company.

And as it turns out, not so good.

They've been losing money every single quarter.

They barely have any revenue.

It's like in the thousands,

and they have about less than 2 million cash left

and they're lost $80 million last quarter.

So the notion that this company is a going concern

and that could possibly continue, absolutely not.

And just ignoring all that fundamental data

to say that I'm gonna jump on this meme

and it's a good decision, not so wise.

So be very careful about the process that you're looking at

and attributing what could be luck to skill.

Number three, confirmation bias.

You favor information that confirms your existing beliefs.

Peter, this is enormous.

We see this in politics, we see this in investing,

and you could have a position

and there's something out there that can confirm that.

So just sticking with Faraday for a second here.

You're saying to yourself, well, I'm in this position,

let's say you bought it at the top and you're saying,

I wanna wait till it comes back.

Well, I need to find some information to say

that this is gonna be a good situation for me.

If you just do a Google search,

Faraday Future is going to be a good stock in the future.

This will come up very quickly.

I found this article here, it's gaining momentum,

it's the meme stock of the future.

And you could do this with pretty much anything.

And that's the danger of kind of living in that bubble

and not seeking out objective information on both sides

and just looking for the information

that confirms your existing belief.

- Yeah, I mean politics, you mentioned the beginning,

politics is the best example of people

that suffer from confirmation bias,

which is almost everybody.

So you know, for our listeners that are, you know,

very conservative, they might watch, you know, Fox News,

they might go online to the Drudge Report

or there's a bunch of sites, right?

And then if you're pretty liberal,

you're probably reading the New York Times,

you're probably watching MSNBC and CNN,

in other words, you're only listening to stuff

you already agree with 100% of the time.

And if you don't think you're susceptible

to confirmation bias,

think about the five hot topics for you.

Like maybe it's immigration, pro-choice, pro-life, taxes,

you know, all the sexual identity stuff.

You've got opinions, right?

All of us have opinions on all of this stuff.

And are you open-minded at all

to the other side of this debate?

Or are you only watching things

that validate what you already believe

and say the other side are complete idiots?

Is there any issue of the top 10 political issues,

is there any that no matter who,

we had a whole day of the greatest speakers in the world

on the other side of the topic

giving you all of the reasons to take the opposing view

of where you are in any of those 10 issues,

would you change your mind about any of them?

The answer is no, you're not going to, right?

That's how incredibly powerful confirmation bias is

when you carry it over to the equity markets,

and Warren Buffett talks a lot about this.

You know, you buy a stock

and you look for reasons to continue to own it.

You rarely look for reasons to sell it.

And really you should be looking at the opposite.

I can tell you, at Creative Planning,

when we're gonna go buy something,

whether it's a private equity fund

or investment, public investment,

we are looking at what can go wrong.

Like what are the things that can go wrong here?

If this comes undone, how did it come undone?

Is it the management team?

Is it the approach?

Is it the, what is it?

And that's really the way you should look at your positions,

not just when you buy them, but later.

Ask yourself, why am I still holding this?

Would I buy this today?

What could go wrong?

Devil's advocate is really kind of the next step

of being a good investor.

- Yeah, so having, it's kind of related to the last one,

having that good process going in and checking everything

and make sure you're going through the due diligence

and thinking about the downside

and thinking about the other case that could be made.

And the stock market's a perfect example,

because for every buyer, there's a seller.

And you're selling to someone

who might have more information than you.

And what is their position?

Why is someone selling you their Faraday Future

in this example?

Why is someone selling you?

It might be a benign reason, right?

It might be, okay, they need the money for retirement,

a liquidity event,

but it might be because they know more than you,

and just ignoring that

could be a very, very dangerous thing.

Do you find in talking with people who come in,

they come in, this happens a lot in Creative Planning,

they come in with a concentrated stock position,

and they've done extremely well in this position.

Whether it's Netflix, Tesla, Apple, Amazon,

invariably they're gonna be attached to that position.

They're gonna know all of the talking points

supporting that position going forward.

Do you find it difficult to convince them,

this, you might be wrong about this,

or simply we don't know.

You might be right, but simply it's just the risk

that you're taking here.

I mean, how difficult is that in talking about

a concentrated position with--

- I mean, the odds that an individual stock will beat this

in S&P500 in the next 12 months is about one in three.

So the odds are really, really against you.

And it goes, it gets worse as time goes on.

But that person that's showing up

with that individual stock

oftentimes worked at the company, right?

So they're going, well, I know this company really well.

It's always done right by me.

Of course it has.

That's why you're, you know, in my office

with this millions and millions of dollars

of one stock, right?

So it's wonderful that that worked out.

It may or may not continue.

And I, you know, I don't try to talk people

into or out of anything.

You know, I just walk them through,

here's the probability of these outcomes.

Here's the valuation of this position.

Here's the amount of money you need to be independent

for the rest of your life.

And you know what most people decide to do

is they take off the table

what they need to be independent for the rest of their life,

and they leave the rest in the game,

and whatever happens, happens.

And one in three times,

they're very happy that they did that.

And two out of three times,

they're very happy that they diversified.

- That's often the answer.

If you take something off, and you're not,

don't take everything off the table,

then at least if it goes down, you feel good.

If it goes up, you still have exposure.

And that's usually the right answer for most people,

because the fear of missing out is just too much.

They're thinking about, if I sell it all

and this continues to go higher,

that's absolutely gonna kill me.

But yes, very hard to convince people to change their minds

even when the evidence is staring them in the face.

Okay, bias number four, Dunning-Kruger Effect.

I know you don't have this problem, Peter,

but a lot of people do.

You overestimate your ability

when you know little about something.

And in the investing world, this is very common,

and every study that's ever been done

on individual investors, professional investors,

what they show is when people

are more confident in their abilities,

they tend to trade more.

And the more they trade, the worse they do.

This is a famous study from Barber and Odean,

and it's looking at 66,000 households,

so not a small sample size.

And what they found is the ones that traded the most

had an annual return during this period of time,

of 11.4% of the year per year.

And the market returned 17.9% during that period of time.

So substantial under performance

and over confidence, they found,

was explaining a lot of that.

And their central message was,

trading is hazardous to your wealth.

And you know, how simple is that,

that your confidence level, in many areas of life, Peter,

confidence serves you well,

it's good to have confidence in your abilities

when you actually have them.

As we know, the randomness in investing

and the difficulty

in terms of getting in and out of the stock market

makes overconfidence very dangerous.

And you have an extra factor

when the more confident you are,

the more you tend to take concentrated positions.

And you could just obviously do very well with that

or do very badly with that.

And more investors end up on the worst side

when they take concentrated positions.

- Yeah, there's definitely a curve

when it comes to investing

as there is with just about anything

you can become an expert in.

Where you know nothing, you go, okay, I don't know anything.

And then you really research

and you feel like, you know,

let's say you're halfway there, you think you're 90% there.

So you're taking very decisive action,

but you're actually in worse shape

than the person who knew nothing, right?

And then there's someone who knows a lot,

and that person who knows a lot is smart enough to know

that they don't know everything

that they need to know, right?

And I think that that's a curve of knowledge.

The more you know, the more you realize you don't know.

And I think you could look at, you take that,

it can be a philosophical, if you're looking at religion,

if you're looking at investing,

it takes a lot to go from, I know nothing.

Some of the best investors I know are the ones who go,

I don't know anything, right?

But I know, and I know these two or three basic principles

keep my taxes under control, be diverse.

I think they tend to do better

than the people that have probably spent

two or 3000 hours researching the space

and they start to feel like they can outsmart

certain segments of the market.

You gotta take another segment to realize that's not true

or very likely not true.

- And, right, the chart here is kind of stunning,

because it's totally inverse correlation.

You can see the net returns going down

and the turnover going up.

So just check yourself, check your ego.

If you have an ego coming into investing and trading,

it's gonna be gone very soon

because there's nothing more humbling than the markets.

And it was a good lesson for everyone.

I think that there was a famous quote, right,

from "The Big Short",

where it was something like,

it's what you think you know that,

but it actually isn't true that really kills you.

And that's absolutely the case, okay?

Bias number five, the Endowment Effect.

And we all do this.

I think the study that, the famous study

that they found out, it was,

I think it was with the Kahneman.

And what they did was they gave people mugs,

half the group mugs, the other half,

they said you didn't have the mugs

and they had people, you didn't own the mugs,

but they had them then sell the mugs to each other.

And the ones that had these coffee mugs,

and they owned the mugs that were given to the mugs

as opposed to just borrowed them,

well, they demanded a higher,

much higher price when they were selling it.

So they became attached to this thing, right,

almost immediately.

And so this is the concept.

You value things much more when you own it.

And I think the best example of this,

and obviously this is true in the stock market,

but the best example of this is the people's biggest asset

for most people, which would be their house.

And you see this all the time

in terms of the houses that are sitting on the market,

while it's sellers being unreasonable,

thinking that their house,

there's something special about their house

that makes it worth more,

they think it's worth more than it actually is.

- Yeah, I mean the Endowment Effect is why

when you go into jewelry store,

they have you try it on, right?

The second that the psychology switches

to where you see that necklace on you,

you see that bracelet, that ring,

and that Endowment Effect starts to kick in.

Oh, you like the car dealership,

why don't you have a seat in it?

You like that dress, why don't you try it on?

And that's, you know, people in sales are very familiar

with the Endowment Effect and how powerful it can be.

- Okay, number six, authority bias,

trust opinions from perceived authorities more.

There's a lot of perceived authorities

in the investing economics world.

And I just picked out a few examples here

from Treasury Secretary Yellen, former Fed Chair as well,

and some of her quotes

and what she was saying about inflation in early 2021,

downplaying inflation fears,

saying they're small and manageable.

This is kind of the transition.

She expects high inflation rates to be temporary,

then she says they could reach 3% this year,

then she says it's gonna stay higher for several months.

And then she's saying this new bill that they wanted to pass

is going to help with inflation.

And then it ends, of course, with her saying,

we need to stop calling it transitory.

And Yellen's not unique,

but this is just a situation where the person

who should know the most about a particular thing,

this was her field of expertise, 100%.

And she didn't see the biggest spike in inflation

in 40 years coming.

Not only did she not see it,

one of the proximate causes of it,

which was this huge borrowing and spending, the stimulus,

she's saying that won't cause it.

- Right.

- And so, what do you make of this?

- What's crazy about this is it's not an exaggeration to say

that this supply and demand function of money

is literally week one of ECON101.

Do you know what I mean?

Like, this is like,

this was not some advanced crazy concept.

And so it just shows how powerful this is.

I think this bias,

it might have a different name when you put it this way,

is when people look to it,

it's not just being authority figure,

but people look to authority

even for things outside of their realm.

Like when people are asking for the morning routine

of Mark Cuban, who cares what it is.

Like Warren Buffet's morning routine

is to drink a two liter of coke before noon,

go to McDonald's and order a bacon egg and cheese McMuffin.

I mean, like that's not the person

to get morning routine advice from.

But we give all this, you know,

authoritative power to people

who are successful in one area.

I mean, look, Yellen can't get it right

in her own area, right?

And we look at people and we try to lean on them

for advice outside of,

like as if we emulate those things we can replicate.

- I should have put that one in there.

That's the Halo Effect.

Yes, I love that one.

I gotta, one of these podcasts

we'll pull out Mark Wahlberg's.

- I know, I saw that.

Is it 2:00 AM or 3:00 AM,

he'd taken up like a whole other level from everybody else.

- Yeah, it's like for like the entire day

he's going back to the gym,

to like speeding back to the gym.

- Yeah, when I saw his,

at that point, you don't even get credit

for getting up early 'cause what you've really just done

is changed your entire, everything's just moved, you know,

the entire schedule calendar has just moved.

- It's pretty hilarious.

If he actually did that even for one day,

I gotta give the guy credit.

But Jerome Powell, similar,

I don't wanna just throw it all on Yellen here.

This was him in early 2021.

"I really do not expect we'll be in a situation

"where inflation rises to troublesome levels",

and he's talking about they're approving

the third stimulus at the time,

and he's kind of supporting it and he's saying,

this is not a problem for this time.

And the burst of new spending

shouldn't cause unwanted inflation.

And it's incredible how all of that is forgotten

when today he's saying inflation is tamed,

we're gonna get into control

and we're likely gonna start cutting rates in the fall.

Maybe that will happen,

but it's all of the failed predictions of the past

are just immediately forgotten.

It's just kind of incredible when it comes to the Fed

that there's kind of this,

the market and people, there's no remembering the past.

Whether it's Greenspan or Bernanke,

everything that they said in the past that didn't come true,

we're still viewing them as oracles for the future.

- Yep.

- Okay, number seven, Bandwagon Effect.

You tend to follow popular opinions or trends.

Do you know where the bandwagon Effect came from, Peter?

- No.

- It's actually a crazy story.

- Lets hear it.

- I think it was in the 1800s,

I think it was Zach Taylor running for President,

and this popular clown at the time, it sounds kind of crazy

that there was a popular clown in the 1840s

that supported him

and got him to ride on the bandwagon with him

while he was traveling around.

And that supposedly helped him get elected.

And so then the opponents after that were saying, you know,

you're gonna jump on the bandwagon.

That became kind of a theme in the future.

But we all tend to do this,

you tend to follow popular opinions or trends

because it feels good to be around other people

and to think the same thing.

It's much harder to be the contrarian in the group.

And what's interesting about this Bandwagon Effect

is that the normal relationship between price and quantity

doesn't take hold with this Bandwagon Effect.

What you see is actually more demand for it,

the higher the price.

And there's a lot of good examples of like,

crypto's probably the best example

where as soon as crypto's running up in price,

you see everyone gets excited, everyone's excited,

and then it crashes and everyone hates it, right?

So a lot of different examples

of the Bandwagon Effect in the market.

I think today, the easiest place for equity market investors

would be the tax sector.

How do you not jump on the bandwagon

just given the enormous outperformance of tech

versus the market over the last decade?

- Yeah, you're talking about 13 years too.

Like, it's very easy and to look historically at a chart

and go, oh, you know, tech bubble, or oh 809,

I could have totally got through that.

These are not things that are going on for three weeks.

I mean, this thing has been going on for 13 years.

If you're a value investor,

you've gotten destroyed by growth, small cap,

destroyed by large cap, every sector destroyed by tech.

It's very hard to have the discipline

and not take every single dollar you own

and put it in large cap US tech,

'cause it's worked for 13 years.

Of course, you know, people know

that invest over long periods of time

that that's not only not normal,

it's never been sustainable, right?

What we don't know is when is it gonna end, right?

So I look at, you know, I look at Creative Planning,

and our biggest position for almost every client

is large cap US stocks.

And so half of that is tax.

And the huge beneficiaries of this runup,

we don't know when it's gonna end, right?

Now, when it ends,

there will likely be a rotation to something else.

You'll see things that underperform do better,

and those might be smaller positions

in our client portfolios, but they're there, right,

whether it's small cap or mid cap

or international or whatever.

And so the hard part as an investor is to really,

when you're looking every single day, thousands of days,

to have the discipline to stay diversified,

that's a very, very difficult thing.

- Yeah, it's today like saying don't go all in on tech with,

especially given that these are the names you know,

and we've been talking about this for over a year now.

These are companies you use every single day.

I think that's what makes it so different than the past,

even in the 1990s.

Yeah, Cisco was a big stock.

And yes, people use Microsoft,

but the extent that Apple and Amazon and Google

and Microsoft are in our lives today

is just so much greater.

So it's, I think it's just that much harder for people

to see a situation where they're not dominating.

But history has taught us, right?

The bandwagon can move in one direction

and then we saw how quickly after March, 2000

it moved in the other direction.

And that herd behavior when it leaves

can happen very quickly.

It doesn't have to happen the same way.

It could be a decline that takes years to happen.

But in this case, after 2000 it did not,

people were, everyone was in,

and then all of a sudden the music stopped

and everyone was out.

And then nobody talked about tech.

It's hard to imagine,

but you're talking about 2002, 2003, 2004, 2005.

Tech wasn't the big story back then, right?

It was housing, it was energy stocks, materials,

like it was new, different leaders.

So this concept that it's always going to be technology

always and forever simply isn't true

even just looking at the last 20 years.

- That's right.

- And we have the same thing,

which is very interesting in terms of the people

who give advice.

There's these newsletters, and they tell you,

dude, you should be long the market,

short the market, somewhere in between.

And Investors Intelligence tracks this over time saying,

what percentage of these newsletters

are bullish versus bearish?

And today the highest percentage of bulls

we've had since 2021, 97 percentile, 63%.

And you could see the relationship between the S&P500

since October, 2022 when the bear market bottomed,

and this percentage of bulls,

you could see it moving up, up, up, up, up, right?

So people now want to be bullish

because prices are going up,

the market's having an awesome year,

we've hit 30 something all time highs already.

Who wants to stick their neck out

and say that it's not going to continue?

So we see this in the advice business as well.

Hard not to fall prey to the Bandwagon Effect.

Okay, number eight, and then we'll talk about

some ways to avoid it.

The Recency Effect,

and this is probably the most perilous for investors

because we tend to think

that the recent past is gonna continue in the future.

It's just simply giving more weight

to the latest information or experiences.

And Vanguard does these polls of investors, Peter,

every quarter asking them,

what do they think the stock market's gonna do

over the next 12 months?

And I just highlighted in red here

what investors were saying during bear markets.

So in 2018, when we had the 20% drop in 2020,

when we had 30 something percent drop,

and the high 20% drop in 2022,

you could see investors were using

that decline in the market.

Not to say that stocks were cheap

or gonna do better in the future, the exact opposite,

they were forecasting

that the market was gonna actually do worse

over the next year.

And of course the exact opposite occurred.

And today, not surprising that people think

that the next year is gonna be good.

- Yeah, I agree.

I mean it's just, it is very clear.

It's like the Michigan Consumer,

University of Michigan Consumer Confident Survey.

Market's up, people are more confident,

market's down, people are less confident.

They exit when it's down, they go in when it's high.

It's the fear greed cycle over and over and over again.

- And here, we'll end with Cathie Wood, end of 2021,

predicted 40% annualized returns for her fund

over the subsequent five years.

Here we are today, since then, ARKK is down 53% in change,

in order to get that 40% annualized,

you just gotta do 167% annualized from here, just a small-

But I think the point this is, you know,

talking about experts and relying on the idea

that you can know,

and obviously that's four times

what the market's return would do.

Like that would be just incredible performance.

But people were relying,

and I actually spoke to someone in 2021

who was saying, you know,

this is a fund that did 100% in 2020.

Even if it does half of that,

even if it does 50% per year, that would be pretty good.

And here she is making a case that that's actually possible.

- You know, the tragedy of this fund is,

and I don't, you know, it's hard,

you don't wanna pile on,

but the tragedy of this fund

is that there were very few investors in it

when it was going up a lot.

And then it got all the attention

because of the recency bias, right?

And all the money poured into it to suffer the losses.

We saw it with Legg Mason value fund too,

we see it with the top hedge funds.

There are very few people there in the beginning

when those returns happen, it then gets the attention.

People expect that to continue,

they go in and more people suffer.

So the average investor actually does much worse

than the returns you see historically for a fund.

- Yeah, this fund almost has

all of these behavioral drives, right?

- In one fund, just package all of them, you know, together.

- If you wanted confirmation bias, at the end of 2021,

the fund was down, I think at that point already 50, 60%.

If you wanted to go out,

I mean, she was out there for a couple of months

talking about these 40, 50% returns.

So it was pretty easy to find that confirmation.

All right, Peter, what are some ways in your mind

for investors to overcome some of these biases?

Is there any practical tips that you can give people to say,

you might not avoid it completely,

but this will be helpful in following this path,

instead of just, yeah.

- I think the first step is to don't start with the stock.

Start with you.

You know, where are you, what are you trying to accomplish?

To accomplish what you wanna accomplish,

how much should you have in stocks?

How much should be in other asset classes?

And then what kind of stocks

or other asset classes should those be?

Then you are not, what are you trying to do?

Are you trying to make sure

you're financially independent for the rest of your life?

Or are you willing lower your odds

of being financially independent for the rest of your life

to be potentially wealthier?

You know, most people say,

well, I wanna be independent for the rest of my life.

Well, now we've got,

you start to move towards diversification,

that gets you unmarried to a stock,

more married to asset classes and so on.

You have a higher probability outcome.

You're less likely to earn 80% in a year.

You're less likely to lose 80% in a year.

You have to go through that series of decisions first.

And for some people it's, hey, I'm swinging for the fences.

But just know what you're doing going in.

Then don't get married to the stock.

Ask yourself every day, would I buy this investment again?

If I had cash, would I go buy this again?

Again, the stock doesn't love you back.

And look for the things that can go wrong.

Don't just look for the things

that will continue to go right.

What do you, I'm sure you've got some thoughts.

- Yeah, my thoughts are that if you let subjectivity

and you let your emotions drive things,

you're gonna fall prey to it 100% of the time.

So the only way I think practically to avoid this stuff

is to automate and just have a plan

and outsource the rest whenever is possible.

Because if you leave it to your own devices,

you're gonna do it because it's human behavior.

You think you're not gonna jump into that next trend.

You're gonna do it.

You think you're not gonna fall in love with the stock

and stick with it when it's going down.

You're gonna do it.

But if you have the discipline to say, this is my plan.

This is what I'm doing automatically,

this is my plan to rebalance when it hits certain levels,

and I'm going to stick with it no matter what,

well then at least you have a chance.

You might not, you might change your mind,

but at least you have a fighting chance

to overcome some of these things.

I think beyond that, it's almost impossible.

So there's eight ways to do it,

and I think it's helpful for a lot of people

to get a second look and have an advisor,

of course, looking at your portfolio

to see if you're practicing some of these.

I'm sure you are.

So what we're doing right now

for all Signal or Noise? viewers,

we're giving a free Wealth Path Analysis.

Take a look for a link in the show notes,

and you're gonna get a portfolio checkup with that.

You're gonna get a Retirement Roadmap.

We're gonna take a look at your tax situation.

A lot of CPAs, we have the estate planning attorneys

that are gonna look at your estate plans.

So fill out the form.

I'm gonna have a link in the show notes

for a call or a meeting.

We're in all 50 states,

300 billion in assets under management and advisement,

and we're here to help.

So definitely check out that offer,

free Wealth Path Analysis.

All right, number two here, Peter,

401(k) contribution nudge.

This has been enormous.

We're gonna talk about biases.

We have a huge bias that we didn't talk about,

which is simply inertia.

And that inertia is,

if the employer is not automatically signing,

first of all, people up to that plan,

a lot of people won't take the effort of signing up to it.

But then one step further, whatever the employer sets

as the initial mark of,

they're gonna save 2%, 3%, 6%, whatever that is,

people often stick with that and then don't change that.

So the fascinating thing,

and this is, in my opinion, an awesome development,

is a lot more employees are raising

that level of what they start out with

in terms of automatically taking,

saving for their employees.

And they're, instead of 3%, they're moving up to 6%.

And you could see this chart right here,

the decline and the plans that enroll workers at 3%

and the increase in 6%.

It's more than doubled.

I think it was 15% a decade ago.

Now 30% of plans are doing this 6% automatic enrollment.

What do you make of this?

I just, in my mind, it's just a huge positive development

because what they're saying, Peter,

is people are not going then

and overriding it and changing it.

They're actually sticking with it for the duration.

- Yeah, I think just not only was auto enroll

a brilliant idea of just automatically,

hey, automatically we're gonna put money in here

and you have to opt out.

But also the idea of the automatic increases,

where over time the contribution just goes up.

I think this by itself is making hundreds of thousands,

if not millions of people financially independent

that otherwise would not have proactively taken these steps.

I think it's fantastic.

- Awesome.

Yeah, so here's some of the data on this.

About 60% of companies now automatically enroll new hires.

And that brings a 401(k) participation rate

up to 82% of eligible workers.

In 2007, it was just 66%.

And here's an awesome stat.

Last year, the average employee

with 401(k) account at Vanguard

saved 11.7% of their pay, an all time high.

What's the big reason here?

It's down below here.

People tend to take the path of least resistance.

So this nudge, this automatic enrollment,

people are just gonna stick with it

because we don't change things, for better or worse.

And here, it's for better.

And so any people out there with 401(k) plan,

if you don't have this,

obviously make sure you're saving the amount

that you wanna save.

But if you do have it, good for your employer,

that's a great thing.

And make sure as always, Peter,

that we say number one thing,

make sure you're trying to save as much as the company match

because that's just free money

that you're leaving on the table if you don't do that.

All right, we're gonna end, Peter,

with Signal or Noise here.

This is the hot topic of today.

Growth versus value, highest ratio since March, 2000.

What happened in March, 2000?

Oh, nothing big.

That was just the peak of the .com bubble.

No big deal.

What do you make of this chart here?

This is almost three standard deviations above the mean.

We have data on Russell 1000 growth and value

going back to the 1970s,

almost three standard deviations above.

There's really only one comp left

in terms of growth style performance versus value.

And that would be the .com bubble peak.

- Yeah, I think that, you know, a hundred years from now

when you're looking back at the markets

and there's gonna be this five to 10 year period

that just doesn't make sense with everything,

small versus large, US versus foreign, growth versus value.

And there's gonna have to be an asterisk

that says there were about five to 10 tech companies

that changed all of this, right?

So I would add that as the caveat here

that makes it a little different.

It's not quite as widespread.

It's just really the emergence of the mega cap tech company.

And you see it like, it continues to be sustainable

because the same companies have been so good at adapting.

The four or five leaders in the AI revolution,

most of them, not all of them,

most of them are the old legacy names.

Yeah, you have Nvidia,

but you also have still have Alphabet and Meta

and Google and Microsoft.

These are the leaders in the AI space.

So you see this whole new revolution happening

within these companies.

But look, we know how this story ends.

There will be a regression at some point.

It can happen, it doesn't have to be a collapse of growth.

It can be a slowing of growth

and an increase in value at one way or another.

You know, we know the end of this movie,

what it's gonna be like.

- So you're saying signal here?

- I think it's a signal.

I think it's mostly noise with a signal embedded in it.

Like there's, it's not 100% noise.

I'm curious your take.

- All right, I'm not gonna equivocate,

I'm gonna say this is signal here.

I'm gonna go out on a limb.

We don't do many signals,

but I think this is one,

this is what happened the last time we were at these levels.

Seven years following that peak

in the growth to value ratio.

85% return for Russell 1000 value over the next seven years.

Russell 1000 growth down 29%.

Don't expect the same thing to happen

in the next seven years.

And like you said,

it doesn't have to be a crash in this ratio

like it was the last time.

We went from way above it,

you could see in the chart, to way below it, right?

We don't have to do that.

We could go back to the meme,

we could just trade sideways.

But the point is, I don't think investor expectations

saying growth is gonna have

the same returns in the next 10 years

that it had in the last 10.

I don't think that's realistic or reasonable.

I would not be throwing, this is the worst time I think

to throw value stocks out of your portfolio.

And I think you'll be happy to have it

at some point in the next few years,

even if we just go sideways back and forth.

At least you'll have it during years

where there's big growth outperformance.

So my take, we'll revisit this in the future

to see if it was actually a signal,

but I'm saying this is a signal.

Doesn't mean it's gonna happen tomorrow,

but at some point you'll be happy to have something

other than the magnificent seven growth names

in your portfolio.

Okay, Peter, covered a lot of ground.

We'll end it right there.

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