Let's face it. We are human. Although usually, we are well-intentioned, there are many factors that affect our decision to invest in something. Before you invest, make sure you pass these 24 tests. Note: I learned these at a hedge fund that had over $300M assets under management.
1) Curiosity: Is our curiosity in the right place? Did we overlook something because we were not curious enough? Did our curiosity go deep enough?
2) Excessive Self-Regard: Are we being absolutely objective? Are we making our recommendation because we have invested a lot of time and are now fond of it? Is our expertise being overvalued?
3) Social-Proof: Are we being sheep and just following the herd? Are we simply being influenced by the actions or recommendations of others?
4) Inconsistency-Avoidance: Are we rejecting this idea because it is inconsistent with past ideas? Are we making a recommendation because it is consistent with an expectation or current consensus?
5) Authority-Misinfluence: Is our recommendation being influenced by an authoritative figure? We truly believe in the recommendation we are making or are we just being sheep?
6) Overoptimism: Do we believe in this recommendation because we strongly hope so? Are we investing because our other recommendations are hitting it out of the park? Are there other factors in our lives that are making us overly optimistic that are leading to this recommendation?
7) Liking/Loving: Is our decision being influenced by our likeness or lovingness for a product, person or an action? Are we distorting facts or faults?
8) Disliking/Hating: Are we being influenced by our hate or dislike? Is our judgment being skewed in any way by our distaste for somebody or something?
9) Availability-Misweighing: Are we basing our decision based on overvaluing easy to obtain information? Are we properly weighing the information that we get based on how easy it was to obtain that information?
10) Reward and Punishment Superresponse: Are we being influenced by our need to hit an investment goal or fear of missing a goal? Are we being blinded by our goals? Would we still invest if we had no goals or if punishment were absent?
11) Doubt-Avoidance: Are we making recommendations because of stress or confusion? Are we making a hash decision to invest to erase any our doubts?
12) Envy/Jealousy: Is our recommendation being influenced by envy or jealousy? Are we investing based on something outside of fundamental data? If so, how might those factors relate to envy and jealousy? Do we envy a certain portfolio manager that is influencing our decision?
13) Influence-from-Mere-Association: Is our decision influenced fom a previous success? Are we associating this recommendation incorrectly? Are we correctly identifying the differences between this investment and past successes?
14) Simple, Pain-Avoiding Psychological Denial: Are we possibly in denial that we made the wrong investment decision? Are we distorting or ignoring facts because we do not want to believe that we were wrong?
15) Deprival-Superreaction: Is a loss of money influencing the decision? Is the fear of missing out on gains influencing our recommendation?
16) Reason-Respecting: Is our recommendation based on reasons which are useless, wrong or meaningless?
17) Contrast-Misreaction: Are we evaluating a recommendation in absolute terms? Are we simply choosing the lesser of evils? Are we settling on this recommendations because it is better than the other so-so recommendations?
18) Use-It-or-Lose-It: Are we succumbing to the "man with a hammer tendency?" Are we not using the skills required because they are out of practice?
19) Reciprocation: Are we falling for a trade trap? Perhaps, friends or family's working at this company? Are we receiving benefit from this company that influences our decision: e.g. free swag, networking, benefits, promises
20) Twaddle: Are we listening to and believing in nonsense? Are we looking past the noise and information that doesn't actually matter and delving into the most important facts of the opportunity?
21) Senescence-Misinfluence: Has aging influenced our analytical skills and/or decision-making abilities?
22) Stress-Influence: Are there outside factors like stress or pressure that are influencing our recommendation?
23) Drug-Misinfluence: Is our recommendation being influenced by drug use?
24) Lollapalooza: Are we possibly saying "no" to all the above checkpoints due to a melange of several of them acting in concert?
Let me know what you think! Especially if there are other traps you should check before investing!
Good investing everyone!