Applying Behavioural Finance – Season 3, Episode 7

The Meaningful Money Personal Finance Podcast

Pete Matthew

Education, Business, Investing

4.9 • 1.7K Ratings

🗓️ 9 November 2016

⏱️ 34 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Over the past six weeks, we’ve taken a look at what Behavioural Finance is, and spoken to some experts and practitioners for their thoughts on the subject. Today I want to look at applying behavioural finance in real-world situations, so that we all can stand the best chance of making optimum decisions.

Applying Behavioural Finance

This series has been really well received, and I’m grateful to everyone who has offered feedback. Certainly I’ve enjoyed delving deeper into this subject, which has fascinated me for a while. I know that it’s something I’ll keep coming back to.

I want to look at some true-life scenarios where you might have a need to apply what we’ve learned. Hopefully that way, when those situations come around, we can be prepared for them. Forewarned is forearmed and all that.

Here are the six scenarios I use to explain about applying behavioural finance

What should I do with my portfolio in light of [Insert impending crisis here]?
I’ve been checking my portfolio every day and it’s going down. I think I’m gonna sell.
Oooo, that looks nice and shiny, should I spend/divert some of my savings, or pass?
A friend gives me a stock/fund/sector tip; should I invest?
My friend or family member has made big losses in their investments and has cashed everything in. Perhaps I should do the same?
I want to invest but the market is high – should I wait?

These six scenarios, and doubtless many more, teach us about the five main biases of behavioural finance:

Over-reaction/availability bias – taking on too much news flow and reacting accordingly
Focusing on short-term performance – in the context of a long-term plan, what does it matter?
Following the herd – the wisdom of crowds is rarely visible in investing situations
Confirmation bias – being more aware of information that confirms your pre-existing thoughts, and not being objective
Anchoring – latching onto artificial numbers and framing decisions in that context.

Resources mentioned in this week’s show

Self-check questions: Click the button below to download the checklist of questions to ask yourself when faced with a big decision:

Article: Real-world applications of behavioural finance – Nerdwallet

Video: Minds, Markets and Magic – Paul Craven

Podcast: Risk, Volatility & Timescale

For advisers (and anyone, really): Improving Investor Behaviour

Transcript

Click on a timestamp to play from that location

0:00.0	Hi folks and welcome to the Meaningful Money podcast, season three, episode seven.
0:04.4	I've told you that we're on our own. Forget everybody else. Forget Paulie.
0:13.6	We're back. We're nearly up to full strength and this is the podcast dedicated to helping you put
0:19.4	your finances in order.
0:24.1	My name is Pete Matthew and I'm going to share with you everything you need to know and everything you need to do to secure your financial future.
0:27.6	I'm here to help you make sense of money.
0:45.3	Yes, we're nearly better. Still a little bit sinusy and not quite full chest capacity, but doing much better than I was last week. So apologies for the missed week. Thank you for all your
0:50.5	kind words. All the people who emailed me and tweeted me to say get well soon.
0:59.9	Just a nasty cold, but I never get cold. So really wound me up that I just had no energy or anything to do anything. And there's no way I could have talked for half an hour into a microphone
1:03.7	without descending into a coughing fit. So thank you for your patience. But we are back and ready
1:08.5	to sort of round off season three. Over the past six weeks,
1:13.1	we've taken a look at what behavioral finance is. We've spoken to some experts, practitioners,
1:18.1	and just ordinary people, you know, just to a podcast listener Vanessa a couple of weeks ago.
1:22.8	Today, though, I want to sort of really look at applying behavioral finance in real world situations to try and give
1:29.6	us all the best chance possible of making optimum decisions in the moment. Okay, so that's where we're
1:35.6	going today. After the main body of the show, as usual, I'll look at a recent review, which has been
1:39.5	left, and now that we're going to be talking about next week. But before any of that, remember,
1:43.2	this podcast is brought to you with the help of seven investment management.
1:47.3	They're a firm of investment managers based in London. They specialize, particularly in something
1:51.1	called multi-asset investing, something I talk a lot about here on the show. And that brings
1:55.9	institutional level investing techniques to ordinary people, just like you and me.
2:00.4	Seven IM have been supporting me here, just like you and me. Seven I.M have been supporting me
	...

Please login to see the full transcript.

Previous episode | Next episode

Disclaimer: The podcast and artwork embedded on this page are from Pete Matthew, and are the property of its owner and not affiliated with or endorsed by Tapesearch.

Generated transcripts are the property of Pete Matthew and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.