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The Stan Clark Financial Team

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Behavioral finance

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The Stan Clark Financial Team’s Perspectives on

Behavioral Finance

Key Readings

 

Behavioral finance explores the relationship between human psychology and financial decisions. Successful financial planning and investing often requires going against the crowd and against some of our most deeply rooted human emotions. Our approach and philosophy, built on the lessons of behavioral finance, help us do that.

As you read the story below, you’ll get an idea of what is wrong with most investment methods, how human psychology constantly leads us into making mistakes that cost us money and what you can do to avoid those mistakes in order to outperform long-term market averages.  Read Stan’s story about investing and how it relates to Behavioral Finance

 

How emotions and biases affect our finances

One of the most fascinating things ever to happen in economics was when an ingenious psychologist, Dr. Daniel Kahneman, decided to study it. In 2002 he won the Nobel Prize in economics for “having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.” Kahneman actually created a new discipline, Behavioral Finance.  Learn more

 

How emotions & biases affect our finances  

Stan Clark talks about how we built our approach and philosophy on the lessons of behavioral finance

 

How Emotions & Biases Affect Our Finances

[Upbeat Music}

[Stan Clark

Portfolio Manager & Senior Wealth Advisor

CIBC Private Wealth – Wood Gundy]

One of the most fascinating things ever to happen in economics was when an

ingenious psychologist decided to study it.

Hello. My name is Stan Clark.

[How Emotions and Biases

Affect our Finances.]

Today I’d like to talk about how emotions and biases affect our finances. In 2002 a

Psychologist, Dr. Daniel Kahneman, won the Nobel Prize in economics for, quote:

[having integrated insights from psychological research into economic science,

especially concerning human judgment and decision-making under uncertainty.]

having integrated insights from psychological research into economic science,

especially concerning human judgment and decision-making under uncertainty.

Kahneman actually created a new discipline, Behavioural Finance.

He, and others since, have repeatedly shown that when it comes to matters of

economics, finance and investing, people, including professionals make systematic,

repeated mistakes, are seldom aware of their mistakes and fail to learn from them.

[Behavioural finance can help us avoid the mistakes and benefit from the mistakes of

others.]

Becoming more familiar with Behavioral Finance can help us avoid these mistakes, and

benefit from the mistakes of others.

Kahneman’s major discovery was that emotions and cognitive biases have far-reaching

effects on our judgments and decision making. No matter how smart, educated or

professional you are, emotions and biases affect everybody because they’ve been hard

wired into our brains over millions of years of evolution.

Research has documented a host of ways our normally helpful intuitions hinder good

judgment.

[Image of a crystal ball with a line graph inside of it.]

First, we tend to be far too confident in our predictions and the predictions of others.

[Image of a side car mirror with the text “objects in mirror are closer than they appear”.]

Accurate forecasting is extremely difficult and sometimes impossible, but we have a

“hindsight bias”.

[Image of several books lined up on a shelf.]

This makes us believe the past was more predictable than it actually was, and it

prevents us from learning from history.

We naturally place much more weight on recent events and personal experiences. This

is another reason we never seem to learn from history.

[Image of a man in a suit on all fours with his head in the sand.]

We selectively filter and process information. We see what we want to see, and often

ignore uncomfortable facts.

[Image of an anchor being pulled by a rope shaped as a brain.]

Our intuitions are poor at estimating probabilities, are strongly affected by what we’ve

been anchored on, how things are framed, or what we’ve been repeatedly exposed to,

all of which distort our judgments.

We’re overly influenced by small numbers of observations and see patterns and causal

relationships where none exist.

[Image of 3 children reading a book with a teacher.]

And we’re much more influenced by anecdotes, narratives and stories than by facts,

figures, and statistics.

[Images of a man standing in front of a large chalk board filled with equations and

graphs.]

This causes us to be persuaded by a good story, even when the numbers don’t add up.

Humans are the most social animal on earth and are uncomfortable going against the

crowd.

[Image of penguins on an iceberg jumping into the water, following the lead penguins]

So, we often get swept along with it, even when the crowd is going where it shouldn’t.

[Image of a cartoon heart and brain icons on opposite sides of a scale. The brain icon is

slightly higher than the heart.]

Often our rational brain makes up arguments, so we’ll believe what our intuitions want

us to believe.

[Image of a lawyer in a courtroom making a statement.]

Some of the smartest people make the biggest mistakes because they think behavioral

finance doesn’t apply to them and they are very creative at rationalizing and coming up

with arguments to justify their preferences.

The consequences of our all-too-human tendencies are significant, especially when

dealing with our finances and investments. Behavioral Finance is a huge and important

topic that affects us all every day. It’s a fascinating area and its teachings form the

foundation of everything our team does for you.

I invite you to learn more about Behavioral Finance and how our team uses our unique

financial planning, asset allocation and rules-based investing strategies to grow and

protect your wealth. You can find more about these, including summary videos on each

by Sylvia, Tom and Mike on the “Our Perspectives” section of our team’s website.

And please contact us by phone or email if you would like to discuss how any of this

applies to your specific situation.

[CIBC Private Wealth consists of services provided by CIBC and certain of its

subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The

CIBC logo and

“CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a

registered trademark of CIBC World Markets Inc.

This information, including any opinion, is based on various sources believed to be

reliable, but its accuracy cannot be guaranteed and is subject to change.

Stan Clark is an Investment Advisor with CIBC Wood Gundy in Vancouver. The views of

Stan Clark and third-party references do not necessarily reflect those of CIBC World

Markets Inc.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.]

How Emotions & Biases Affect Our Finances

[Upbeat Music}

[Stan Clark

Portfolio Manager & Senior Wealth Advisor

CIBC Private Wealth – Wood Gundy]

One of the most fascinating things ever to happen in economics was when an

ingenious psychologist decided to study it.

Hello. My name is Stan Clark.

[How Emotions and Biases

Affect our Finances.]

Today I’d like to talk about how emotions and biases affect our finances. In 2002 a

Psychologist, Dr. Daniel Kahneman, won the Nobel Prize in economics for, quote:

[having integrated insights from psychological research into economic science,

especially concerning human judgment and decision-making under uncertainty.]

having integrated insights from psychological research into economic science,

especially concerning human judgment and decision-making under uncertainty.

Kahneman actually created a new discipline, Behavioural Finance.

He, and others since, have repeatedly shown that when it comes to matters of

economics, finance and investing, people, including professionals make systematic,

repeated mistakes, are seldom aware of their mistakes and fail to learn from them.

[Behavioural finance can help us avoid the mistakes and benefit from the mistakes of

others.]

Becoming more familiar with Behavioral Finance can help us avoid these mistakes, and

benefit from the mistakes of others.

Kahneman’s major discovery was that emotions and cognitive biases have far-reaching

effects on our judgments and decision making. No matter how smart, educated or

professional you are, emotions and biases affect everybody because they’ve been hard

wired into our brains over millions of years of evolution.

Research has documented a host of ways our normally helpful intuitions hinder good

judgment.

[Image of a crystal ball with a line graph inside of it.]

First, we tend to be far too confident in our predictions and the predictions of others.

[Image of a side car mirror with the text “objects in mirror are closer than they appear”.]

Accurate forecasting is extremely difficult and sometimes impossible, but we have a

“hindsight bias”.

[Image of several books lined up on a shelf.]

This makes us believe the past was more predictable than it actually was, and it

prevents us from learning from history.

We naturally place much more weight on recent events and personal experiences. This

is another reason we never seem to learn from history.

[Image of a man in a suit on all fours with his head in the sand.]

We selectively filter and process information. We see what we want to see, and often

ignore uncomfortable facts.

[Image of an anchor being pulled by a rope shaped as a brain.]

Our intuitions are poor at estimating probabilities, are strongly affected by what we’ve

been anchored on, how things are framed, or what we’ve been repeatedly exposed to,

all of which distort our judgments.

We’re overly influenced by small numbers of observations and see patterns and causal

relationships where none exist.

[Image of 3 children reading a book with a teacher.]

And we’re much more influenced by anecdotes, narratives and stories than by facts,

figures, and statistics.

[Images of a man standing in front of a large chalk board filled with equations and

graphs.]

This causes us to be persuaded by a good story, even when the numbers don’t add up.

Humans are the most social animal on earth and are uncomfortable going against the

crowd.

[Image of penguins on an iceberg jumping into the water, following the lead penguins]

So, we often get swept along with it, even when the crowd is going where it shouldn’t.

[Image of a cartoon heart and brain icons on opposite sides of a scale. The brain icon is

slightly higher than the heart.]

Often our rational brain makes up arguments, so we’ll believe what our intuitions want

us to believe.

[Image of a lawyer in a courtroom making a statement.]

Some of the smartest people make the biggest mistakes because they think behavioral

finance doesn’t apply to them and they are very creative at rationalizing and coming up

with arguments to justify their preferences.

The consequences of our all-too-human tendencies are significant, especially when

dealing with our finances and investments. Behavioral Finance is a huge and important

topic that affects us all every day. It’s a fascinating area and its teachings form the

foundation of everything our team does for you.

I invite you to learn more about Behavioral Finance and how our team uses our unique

financial planning, asset allocation and rules-based investing strategies to grow and

protect your wealth. You can find more about these, including summary videos on each

by Sylvia, Tom and Mike on the “Our Perspectives” section of our team’s website.

And please contact us by phone or email if you would like to discuss how any of this

applies to your specific situation.

[CIBC Private Wealth consists of services provided by CIBC and certain of its

subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The

CIBC logo and

“CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a

registered trademark of CIBC World Markets Inc.

This information, including any opinion, is based on various sources believed to be

reliable, but its accuracy cannot be guaranteed and is subject to change.

Stan Clark is an Investment Advisor with CIBC Wood Gundy in Vancouver. The views of

Stan Clark and third-party references do not necessarily reflect those of CIBC World

Markets Inc.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.]

Back to Video
 

Perspectives articles by topic

Written by Stan Clark

 

Our articles on behavioural finance

Our natural human addiction to prediction   Read / Watch / Transcript

Fooled by randomness   Read

Investors, be wary: Our intuitions don't have a feel for probabilities   Read

Trust your instruments over your senses   Read

Lake Wobegon, where all investors are above average   Read

More information increases confidence – but what about accuracy?   Read

Avoid confirmation bias – be open to contrary evidence   Read

Confirmation bias is normal – but dangerous for investors   Read

Anchoring: When to hold on – and when to cut free   Read

How the framing phenomenon affects your key financial decisions   Read

The siren song of stories   Read

Don't let the investment herd trample you!  Read

How to avoid fear-based ‘herd' behaviour   Read

How hindsight can hurt your foresight   Read

How the news can hurt your investment decisions   Read

Mere-Exposure Effect: How familiarity affects your financial decisions   Read

CAUTION: Biases won't disappear just because we know about them   Read

Learn from Ulysses to improve your investing   Read

Five tools to avoid the pitfalls of Financial Sirens   Read

Thinking: We're of two minds about it   Read

Be wary of the words "This time it's different"   Read

The Restraint Bias: How much control do you really have?   Read

The Money Illusion: How inflation threatens what today's money can buy in the future   Read

The Cluster Illusion – Seeing trends where there are none   Read

How rational are you?   Read

Trust your intuition? Sometimes – but not for picking stocks   Read

Beware of cognitive dissonance: It undermines facts, leads to poor investing decisions   Read

Can professional managers be fooled by ‘herd behaviour'?   Read

Luck and the illusion of stock-picking skill   Read

The planning fallacy: How optimism can lead to poor investment decisions   Read

How loss aversion and the endowment effect influence your financial decisions   Read

What behavioral finance tells us about making judgments – even expert ones   Read

Superforecasting: The Art and Science of Prediction   Read / Watch / Transcript

Superforecasting: What makes good forecasters different? (Part 2)   Read / Watch / Transcript

Superforecasting: Philip Tetlock's first five commandments (Part 3)   Read

Superforecasting: Tetlock's next six commandments (Part 4)   Read

Superforecasting: Summary (Part 5)   Read

The rider or the elephant: Who is really in control?   Read

The oldest and strongest emotion – fear   Read

Another Nobel Prize for behavioral economics   Read

The Undoing Project – a friendship that changed our minds   Read

Introversion, extroversion and your finances   Read

We're halfway through: How to carry out your 2025 resolutions?   Read

The future is better than you think   Read

Careful: You likely suffer from exponential growth bias   Read

 
 
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