everyone who is in debt today (and originally didn’t plan to be), once thought they would be able to pay it back in a few years.
everyone who (unfortunately) died climbing the everest, once thought they were prepared to reach the peak.
not that i’m the first one to think that, but this insight does not come to us naturally. the first book that i read about the way we think was thinking, fast and slow, at the same time that i started studying financial education and investments.
when you read more about how we behave as humans, eventually you understand a little more about something called cognitive bias. then you realize we don’t really have a clear picture of how our mind works. and that’s how we’ve got so far: we have automatic reactions because that gave us better chances of survival. cognitive biases aren’t a villain per se, they just aren’t that useful in the modern days.
where we can see this happening a lot is in investments. for example, people usually think that they need to be experts to get good returns. well, if you consistently invest your money in something that at least grows above inflation, and live below your means, you don’t need the best market strategy to retire comfortably. you just need to consistently do that and let time do its job. that’s the beauty of growth: it is driven by compounding, which always takes time. but that goes against our nature of thinking only in the short term.
so don’t try to beat the market or become a day trader. Warren Buffet’s advice is gold: “Stick with big, ‘easy’ decisions and eschew activity”.
next time you consider making a big financial decision, make sure you consider all the variables involved.
Bonus: check it out this cool pocket biases app that shows you a cognitive bias every day.