3 COMMON MENTAL BIASES, & how they lead to financial disaster

Imagine you’re walking down the street on a warm, sunny day. Out of the corner of your eye, blowing in the wind, you spot a piece of paper. As you squint your eyes to get a better look–you realize it’s a $100 bill! What luck!

Here’s the core question of behavioral finance: do you

Go splurge on a lobster dinner from the best restaurant in town or Count your lucky stars that you have an extra $100, and invest it wisely?

Although this is a fairly simple example, it speaks to the small decisions that we make that end up becoming the foundation of our financial futures.

What is behavioral bias in finance?

Behavioral finance is looking at psychological factors that influence investor decisions in financial markets, and their interpretation of informational inputs.

There is a reason that most of the world’s richest people DON’T make their financial decisions on their own. Yes, even Warren Buffet has his partner Charlie Munger to bounce his investment decisions off of. That’s because even the greatest investors of all time are often victims of their behavioral biases.

A certified financial planner is your Charlie Munger. They can analyze your financial prospects from a completely neutral, and financially educated, point of view. A good certified financial planner knows what to look for in their clients’ behavioral biases and can help them steer clear of unwise financial decisions made based upon those biases.

In this article, I will talk about 3 common behavioural mental biases and how they affect your financial decision.

Loss Aversion

In a baseball game, the objective is to win, not to avoid losing. Too many investors base their investment decision on what is called Loss Aversion. If you play to NOT lose, you’ll lose.

Investing your money comes with a certain level of inherent risk. Every investor’s risk tolerance is their own decision to make, however being TOO risk averse can actually be incredibly detrimental to your portfolio. Doing things like stashing money in a savings account and watching it get eaten away by inflation, instead of investing that money–this is a recipe for failure.

How a CFP Can Help A certified financial planner helps you make calculated risks and works to balance your portfolio with some investments that are slightly riskier, and some that are less so.

Anchoring Bias

This one has a bit of overlap with overconfidence bias, but is slightly different in how it can creep in. Anchoring bias is a tendency to overvalue a single piece of information, rather than looking at the entire, complex, investment scenario. Sound investments are made upon multiple pillars of information. For instance, many investors will latch onto an early price target of theirs, causing them to hold onto a particular security for far too long, crushing their potential gains into the dirt.

How a CFP Can Help A CFP takes the time to understand the multitude of angles before committing to an investment and will help you as an investor adapt your strategies to new information in a world that is constantly in flux.

Herd Behavior Bias

While we often feel a sense of safety following the herd, that doesn’t mean our money is safe doing so. Especially with the advent of trading apps for our smartphones, more and more investors are falling into the herd behavior trap, following their friends and coworkers into risky or foolhardy investment decisions. There’s an old saying that really rings true: “If your friends jumped off a bridge, would you do it too?”

How a CFP Can Help When you’ve been investing long enough, you begin to spot the weak points–which are often apparent–in the investment strategies of friends, family, and other acquaintances. A CFP can help you steer clear of these herd mentality landmines.

It’s Time to Get Serious

Knowing and understanding what biases might negatively impact our financial decisions is crucial to your development as an investor. What lies beyond them is a world of investment possibilities that your Certified Financial Planner can help you decipher–while prospering in any market conditions.

Beauty/Fashion Model and Travel Influencer

What’s your definition of influencer? Do you see yourself as an influencer?

An influencer is someone that has the ability to affect others. The more someone trust you, in your particular area of expertise, the stronger your persuasion over their thought processes or purchase decisions. I do see myself as an influencer in terms of beauty/ fashion and travel. It was a conscientious commitment to share all of my life’s experiences on social media to give followers’ ideas and inspiration on clothing, make-up, hair and beautiful destinations to visit. But with that said, I could not proclaim myself ‘an influencer.’ That’s a title given to you by others, not a label that you can tag on yourself.

Did you always want to be the Mahlagha Jaberi you are, and how does it feel to be in front?

I had no plan or design on who Mahlagha Jaberi would become. The progression happened naturally as I developed over the years from all of my work experiences and of course, growing and maturing as a person. I have been blessed throughout my journey and will always be grateful for it.

Tell us about your huge social media success and what are you doing to keep it going and growing even more?

I am thankful for all of my loyal fans across the world. They have supported me from the beginning and have continued to support me. They are the reason for my social media success and they are the reason why I keep going. I am inspired to provide them with fresh and genuine narratives. I like to create content, while I am “in the moment and on the go.” It gives my fans an authentic view of my life and how I see the world.

What do you think is the secret to having a successful social media presence?

The secret is to be yourself. Be real, authentic and genuine. If you post your true self, then people can decide if they love it or not. Once you know yourself, have a consistent online presence, but don’t overwhelm your fans. Balance is key.

You are followed by so many people. How do you feel about that pressure of always doing the right thing and encouraging people to follow their dreams?

That’s a great question. I do not feel pressure, because I am being my genuine self. I do what I naturally want, feel and love. The pressure comes if you are pretending to be a certain person, and it won’t work or last, because it won’t feel right within you. I am a big advocate for people to follow their dreams. I followed mine and continue to follow mine. When you work hard and reach your goal(s), the exhilarating feelings are unexplainable. I want others to experience that, so I continuously encourage people to go after their dreams.

How do you use the power of social media to connect to different age groups with different cultural backgrounds?

I don’t have a specific plan or method that I use to connect. I simply put a genuine version of myself out there and if people feel a connection with me, they join. The other possible explanation is because I enjoy a variety of different things, whether it is food, people, or places. This might be another reason why people gravitate to me, because of my varied interests that aligns with theirs.

What would you say are the greatest lesson(s) you have learned so far?

I have learned to be more accepting of what happens in life, positive or negative. To stop questioning the things that don’t work and appreciate even the smallest things. The more accepting I am, the more open I become to allow positivity to flow.

I bet you get millions of it, but what are the best and worst Instagram DM pickup lines you received so far?

Hahaha, I don’t focus on the DM pickup lines, because I am responding to work requests. I am sure there are a lot of interesting things being said on there. Maybe some marriage proposals, too, lol.

What is next for Mahlagha Jaberi in 2023?

To launch my brand and dream product. A goal that I have initiated and I am very devoted to realizing.

Rapid-Fire Questions

How would your best friend describe you? Genuine and funny.

How would you describe yourself in 5 words? Creative, goofy, calm, spiritual, and passionate.

What is your own definition of happiness? Happiness is seeing my mom smile. To give her everything is what makes me happy.

What makes you smile and what scares you the most? Finding true love with an emotional connection and seeing my family happy, makes me smile. The loss of loved ones, friends and family would scare me the most.

If you could meet someone living or dead, who would it be and why? Elon Musk. He is making a difference by creating better and innovative technology.

Best advice ever given? To use adversity as an opportunity. Every loss leads to an opportunity, and every adversity leads to new possibilities and to trust your instincts. What good is intuition if you let second-guessing drown it out?

The worst enemy of success is self-doubt.

Marble Construction specializes in high-end residential projects, and has over 20 years of experience in building homes in Vancouver, West Vancouver, and North Vancouver. Marble Construction is an award-winning construction company in British Columbia and Canada. The company has won multiple housing awards including Best Single Family Detached Homes in Canada for years 2016, 2017, 2018 and 2019.