ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this seventh episode, they talk about mistake number 11: Do you let the price paid affect your decision to continue to hold an asset? And mistake number 12: Are you subject to the fallacy of the hot streak?LEARNING: Look at everything you own from an economic perspective and decide whether to keep holding or selling. Avoid FOMO (fear of missing out) and stock picking; build a diversified portfolio. “One of the biggest values of a good advisor is to educate people on rational economic decision-making so they can make informed investment decisions.”Larry Swedroe In today’s episode, Andrew continues his discussion with Larry Swedroe, head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.Larry deeply understands the world of academic research and investing, especially risk. Today Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this sixth episode, they talk about mistake number 9: Do you avoid admitting your investment mistakes? And mistake number 10: Do you pay attention to the experts?Missed out on previous mistakes? Check them out:ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing WiselyISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake ExpertsMistake number 11: Do you let the price paid affect your decision to continue to hold an asset?According to Larry, people value things more when they own them. This is due to the endowment effect, which causes people to put extra value emotionally and make decisions based on this. This type of decision-making is utterly irrational from an economic perspective.The endowment effect is a big mistake that investors make, especially when they get gifted...