It's easy to blame external factors such as market downturns, interest rates, or just plain bad luck.
But in my view, the biggest hurdle might actually be you. Maybe you're too biased to be a successful property investor, business owner, or entrepreneur.
What do I mean by that?
Well, I've found that as investors - and even as entrepreneurs or business people - we can sometimes be our own worst enemy.
It's not just about the decisions we make, the opportunities we consider, or the investments we miss out on. More often, it comes down to how we think.
It's because of our cognitive biases.
You see, most of us like to think we're rational people. But we're not. There is no shortage of cognitive biases out there that can trip up our brains.
Cognitive biases are patterns of thinking that don't rely on logic. They can convince us to spend more, save less, and feel more confident in our decisions than perhaps we should.
And the scary thing is, for the most part, we're powerless against them.
I've seen highly intelligent, well-informed individuals make poor decisions - not because they lacked knowledge, but because they were unconsciously sabotaging themselves.
The reason?
Cognitive biases. These mental shortcuts influence how we process information, assess risks, and make financial decisions.
We all have biases. Some help us get through life more efficiently. Others, however, can lead to bad investment choices, missed opportunities, and unnecessary losses.
The good news? Once you become aware of these biases, you can override them, and start making smarter, more strategic financial decisions.
Let's explore some of the most common cognitive biases that trip up investors and business owners, along with strategies to overcome them.
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Confirmation Bias: Seeing What You Want to See
Have you ever caught yourself only paying attention to information that supports your existing beliefs? That's confirmation bias.
Simon Kuestenmacher put it perfectly when he said:
"We come to any issue with a predetermined worldview… and we view absolutely everything through the lens of 'I already know what is right and wrong'."
This is one of the most dangerous biases in investing because it stops you from seeing red flags.
Examples of Confirmation Bias in Investing:
- You believe certain locations are prime for investment, so you only read articles that reinforce this belief while ignoring data suggesting otherwise.
- You're convinced that a certain property market is about to boom, so you ignore indicators that suggest prices are stagnating.
- You assume your investment strategy is sound, so you dismiss new ideas that might actually improve your outcomes.
How to Overcome It:
- Actively seek out opposing viewpoints. If you're bullish on a property market, read critical analyses of why it might underperform.
- Challenge your assumptions. Ask yourself: What evidence would prove me wrong?
- Surround yourself with people who think differently. The best investors welcome diverse perspectives.
Anchoring Bias: The First Number Sticks
Imagine you walk into a car dealership, and the first car you see is priced at $100,000. Suddenly, the $70,000 car seems like a bargain, even if it's still overpriced.
This is anchoring bias - our tendency to rely too heavily on the first piece of information we receive.
How Anchoring Bias Affects Investors:
- At an auction, the auctioneer mentions a recent sale for $2 million, making $1.8 million feel like a steal - even if the property isn't worth it.
- A developer advertises a townhouse at 'only' $750,000, anchoring you to a higher price range before offering you a cheaper (but still overpriced) option.
- You see a property originally listed at $1 million, now reduced to $900,000, so you assume it's now a bargain without questioning its true market value.
How to Overcome It:
- Determine the true value before looking at prices. Look at comparable sales and rental yields before attending an auction or negotiation.
- Ignore price reductions. A 10% discount on an overpriced property is still not a bargain.
- Take a step back. Ask yourself: If I didn't see the first price, would I still think this was a good deal?
Positivity Bias: When Optimism Becomes Dangerous
Optimism is crucial for success, I've never met a wealthy pessimist. But blind optimism can be just as dangerous as negativity. I see this all the time in property investment.
People often believe:
- "Real estate always goes up."
- "My suburb is always a good investment."
- "Vacancies and low growth don't apply to me."
This kind of thinking causes people to hold onto underperforming properties for far too long, ignoring the evidence in favour of wishful thinking.
Loss Aversion: Holding On Too Long
Loss aversion means people hate losing more than they enjoy winning.
In property, this leads to investors holding onto bad investments just to avoid acknowledging a mistake.
Simon explained it well: "We do anything to avoid a loss, even if it's just a small one."
But here's the hard truth:
- Holding onto a bad investment won't make it a good one.
- Not selling a mistake doesn't erase the mistake - it just delays the pain.
How to Overcome It:
- Ask yourself: Knowing what I know now, would I buy this property again today? If not, why are you holding onto it?
- View investing as a business. Businesses cut unprofitable ventures all the time, and so should you.
- Don't let emotions dictate your decisions. The market doesn't care how much you love your property.
Survivorship Bias: Learning Only from the Winners
We idolise the winners, but we ignore the thousands who failed.
People love to say:
- "Mark Zuckerberg dropped out of uni and became a billionaire."
- "This investor made millions flipping houses. So, I can too."
But for every success story, there are thousands of failures we never hear about.
How to Overcome It:
- Study both successes and failures. What mistakes led to failure? How can you avoid them?
- Don't assume what worked for one person will work for you. Their timing, strategy, or luck may be different.
- Take calculated risks. Success isn't about avoiding risks, it's about managing them wisely.
The Most Dangerous Bias: Bias Bias
The final - and arguably the most dangerous - bias is believing that none of this applies to you.
We all believe we're rational, logical thinkers. But the truth is, our brains are wired with blind spots.
The smartest investors aren't those who "know everything". They're the ones who recognise their biases and work hard to overcome them.
So ask yourself: Which of these biases have been holding me back?
Because the moment you recognise them is the moment you start making better decisions, growing your wealth faster, and avoiding costly mistakes.
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