Wealth Advisor Reveals How Money Plays Tricks on Your Mind (Feat. Naftali Horowitz) | KOSHER MONEY

when I entered Wall Street back in 2004 I thought I was adequately prepared to deal with wealthy people and they're sizable assets 2008 the Great Recession the great crash of the stock market I quickly realized that studying security analysis economics money banking stocks bonds had not prepared me for what I was seeing what I was seeing was highly intelligent otherwise rational investors calling me up and asking me to do the most insane things such as completely liquidate their stock portfolio and the reasons and the rationales for doing so we're puzzling these were CFOs of public companies these are people who put together plans well thought out plans as far as growing their wealth into the future and I realized I was seeing something that I was not exposed to in all my years of studying Finance and then when I looked further I realized that my clients were not the only ones pretty much across the board you will find these idiosyncrasies of investors these biases these irrationalities play themselves out during times of stress and turmoil so I realized that I have to go back to school and I have to relearn what it means to be a wealth advisor and I came across the field of study called behavioral Finance which is absolutely fascinating and the moment I was exposed to it I was literally hooked it started with a book by Dan arieli called predictably irrational I then went on to read books by people like Daniel kahaneman Mark belsky and many many others and what I realized is that when we watch the market we watch investors when we watch ourselves making decisions that have to do with Finance and as we're going to see tonight far beyond Finance we actually think that we're making rational decisions but in many instances we're not even we're making emotional decisions or we're making what we think is a rational decision based on very faulty data so each of you filled out a questionnaire before you walked in here there were two teams green and yellow you pretty much got the same questions some of them are identical some of them had small nuanced differences which we're going to show you now and this was there to see whether or not you fit the profile of a typical human being and if you do you will probably fit the profile of a typical investor or even decision maker I just put out eight questions over here but the truth of the matter is I could have put out 60 70 80 questions but some of these I think will be relevant to our discussion tonight so my questions are why is it that some people sell their stocks right before the prices Skyrocket why do some people hold on to stocks for way too long as they watch the share prices plummet why have I met hundreds of people who keep balances on helocs other high interest bearing loans such as credit cards and so on racking up thousands of dollars of finance charges while keeping a savings account or a rainy day fund as many counselors tell you to keep earning close to nothing why do most investors and this is statistically tracked sit out big Market rallies and why do the typical investors jump in sort of at the top only to ride the market down again why do we spend so much on credit cards we've done this with the work I've done with masila with living smarter Jewish and so on if you want to bring a family's budget into line the first thing you do is you cut up their credit cards you force them to spend cash and checks why do we spend more on credit cards than we would do if we took our wallet out and spent cash why am I hearing so many people fetching over the price of eggs when they went up to 399 a dozen yet those same people will go out to a restaurant and spend 95 dollars or more on a steak and nothing twice about it why do we think we get Bargains when we buy things that are marked down why do sales attract us and why do companies have such an easy time luring us to buy certain products if you study the psychology of marketing you'll see how retailers use marketing strategies to get you to buy exactly what they want you to buy and we as humans fall for it and a timely question why is Affinity fraud despite all the warnings that we've seen over the years still so prevalent amongst us and in the world in general as I write many times in my book success comes down to how you think or whether you think you guys filled out a questionnaire and all of you believed that you were thinking as I'm going to share the results you're going to realize you may have an aha moment that you actually weren't thinking at all you may have been using your gut you may have been gotten you may have gotten a hunch but even in some of the instances where applied thought would have given you the answer many of you didn't get the answer and that's not because you live in Lakewood because you don't have a Harvard degree if I gave this questionnaire to thousands of people who went to Harvard I would get very similar results perhaps somewhat different because they've been trained perhaps to pick up some of the traps that I put into these questionnaires so let's start with a word which I learned from Danny Kahneman a Nobel Prize Laureate who really pioneered this idea of Behavioral Finance and the world is a heuristic a heuristic is a Mind Trap that we use to come up with an answer that we believe is adequate sometimes it works and sometimes it leads to Serious errors sometimes it's actually an efficient time saving mechanism we don't think about the statistics of certain things that bring danger to us if we hear the word danger we go into protection mode sometimes using a heuristic is simple intellectual laziness instead of doing the work and trying to understand what's really going on we just use a rule of thumb or we go with our gut feeling and this as we're going to see can lead to Serious Financial mistakes okay so I asked you all a question about in a ball cost a dollar ten the bat costs one dollar more than the ball how much does the ball cost ninety percent of you answered either 10 cents or 25 cents the obvious answer is 10 cents for many people but it's actually absolutely positively wrong now think about it if the ball costs 10 cents and the bat costs a dollar more the bat has to cost a dollar ten which would make the total a doubt of 20. and I told you the total is a dollar ten so ten percent of you got it right you wrote five cents which is the right answer clap if you got it right [Applause] the second question was not as tricky it didn't require math the question was all roses are flowers some flowers fade quickly therefore some roses fade quickly and the answer is absolutely false it may very well be that carnations Faith quickly but Roses Don't just because a rose is a flower does not mean that it falls into the category of things that fade quickly here only sixty percent of you answer true and forty percent of you got it right so what we've learned is that you can take perfectly capable adults and give them simple arithmetic questions or simple logic questions and more than 50 percent will get it wrong not to teach you something about yourself if you answered both of these Wrong by the way the 40 that got the second one right we're almost always the ones who got the first one right so that some of them right some of those guys who got it wrong on the first one got it right on the second one but almost everybody who got it right on the first one also got it right on the second one so if you got it right on both of them it tells you that you may not be as intellectually lazy as the average person which is good okay now I'm going to share with you some heuristics some biases that are prevalent amongst decision makers slash investors there are many in 2008 when I studied this I created a curriculum for NYU the school of continuing education and I believe at the time I taught 18 different biases and heuristics that investors are subject to I picked a handful tonight the ones that I think are the most damaging but there are plenty more that are equally or slightly less damaging the first one is what Danny Kahneman calls wisiati I think I'm pronouncing it right what it stands for is what you see is all there is this is a very famous graphic which you can find on the internet and it's basically three people walking in the tunnel and if you're human and normal the one all the way to the right is larger than the one all the way to the left can everybody see that anybody disagree a handful of you disagree about four or five the answer is they're exactly the same and just where the lines are drawn and the way this graphic is shown your eyes are playing tricks on you and you think that the one to the right is larger but mark my words the first time I did this I didn't believe my eyes I didn't believe that it was actually the true so I cut it out like a two-year-old and I placed one on top of the other to prove it so they are exactly the same your eyes will play tricks on you we've learned that your mind will play tricks on you one of those tricks is you believe that what you see is all there is so I asked you to meet my friend Steve and I told you a little bit about him I told you that he was neat and tidy I told you that he paid close attention to detail and I described them to you and in doing so I biased you I biased you into believing exactly what eighty percent of you believed that Steve is a librarian or is more likely to be a librarian twenty percent of you got this one right why who says there's a right answer because the question was which one is he more likely to have as a profession we don't know Steve we don't know what he does for a living all I did was tell you about his personality so if you pictured him he represented a librarian correct that's why 80 of you said that what were you missing in order to make an educated decision which I would gather a 20 of you realize on your own you were missing What's called the base rate fact which is before I biased you if I told you Steve was a human being who walks planet Earth and I asked you what profession was he more likely to have probably all of you would have answered salesman because as it turns out there are only 138 000 Librarians in the entire United States and there are 13 million sales people in other words out of a population of sales people and Librarians there's almost a 99 chance that if you throw a rock into the crowd you're going to hit a Salesman versus a librarian now have you has your opinion changed in other words has the representation of Steve's personality giving you such overwhelming data that you now believe he's still a librarian and I've always had somebody stand up and say no no no I still believe he's a librarian even though there's a 99 chance that he's not the reality is there are many more people that look and represent Steve that are sales people than there are Librarians and I can assure you not all Librarians represent somebody that looks like Steve I'm sure many of them can be very good salespeople so once you introduce a base rate fact if I gave you that base rate fact I didn't have the time to do this but when I've done this in Prior sessions I've given some of you that base rate fact before I've had you meet Steve and almost all of you would have answered salesman now what have you learned you've learned that when you go into a decision you are going to make a decision based on or at least 80 percent of you based on what your eyes see what's before you what this thing represents this is one of my favorite studies they put out racks of suits and dresses and they did this in two different stores identical clothing A1 the item was marked down from 12.99 and ended at 4.99 in the other the item was marked up from 199 and ended at 4.99 and they wanted to see how many will be bought in store a versus store B as you could imagine the ones in store a floral flew off the shelf and the ones in store B didn't budge nobody buys something that's marked up correct I'm not gonna get ripped off on this suit but all the people that walked out of a said I got a bargain my wife comes home from Woodbury Common with one of her Bargains and she shows me that first label I always remind her that it was not worth 12.99 because if it was it wouldn't be Woodbury Common to begin with it would have sold at 12.99 it wasn't worth 9.99 either and that is just a trick that this represents to you a bargain the same suit will sell if they can present it to you as a bargain and it won't sell if they don't because the reality is you have absolutely no idea what a suit is worth I mean it's worth the the cloth and perhaps the course the sold in Sri Lanka and to ship it here with some markup add the buttons probably less than 30 bucks so we don't know what a suit is worth so what do we do we look for some representation to tell us whether or not it's a good buy or not and the same suit for 4.99 can be perceived as a bargain to one person and a rip off to another simply by how it was presented who cares about any of this well let me give you some examples investors make decisions on a buy or a sell based on what based on fact based on knowledge or based on 52-week highs what the first or second column that you read whether it's Barons or Forbes what are you looking for you're looking for something to tell you whether you should or shouldn't buy or sell IPOs are a perfect example people line up to purchase them there's something exclusive that only wealthy people can buy and everybody believes that they represent a great investment because only certain people can get them well if you look at the data on IPOs and how they actually do if you actually go beneath the surface and study the base rate facts you will find it isn't true at all most people believe that the market does better under Republican leadership when the data is overwhelmingly the other way and you speak to people and they say of course wealthy people vote for Republicans because they're good for the stock market really Google it but this is what we believe because that's what this idea represents in our mind people buy things that they deem safe based on what they look safe they seem safe do they really know do they have any real facts why is Affinity forth prevalent it's called representation bias the guy seems like an honest person I know his uncle I know his neighbors I spoke to some people about him do we really know do we truly do our homework do we understand the strategy do we understand whether or not it's possible for him to be doing what he's doing there were many clients of mine over the years who brought me different strategies from people that had great rep great reputations we've had many Ponzi schemes which were uncovered by people who look deeper to try to uncover true facts the base rate fact is and I looked at something today which made my stomach turn it was represented literally as risk-free with 12 returns the base rate fact is is that the 10-year Treasury is what we would call the risk-free rate that's the Benchmark if you will 2.8 and somebody's bringing you something that's 12. and the word low risk risk-free is associated with it well if you don't know the base rate fact of what actually risk-free rate looks like you can believe that there's something out there that's low risk at 12 percent maybe there is maybe Steve is a librarian but 99 of the time it's not 99 of the time when what you see before you deviates that greatly from the base rate fact it's probably not going to work out as advertised I know this has nothing to do with Finance but what you see is all there is or a representation bias is the root of so much bias racism stereotyping because instead of doing the work and trying to understand the person standing before us we will lump them into a category through mental laziness and bias and say people that look like that dress like that have that skin color really doesn't matter are blank do we know of course not stop and think how many decisions you make based on what the information readily available represents to you versus digging deeper and getting real information in fact we'll be right back to this week's episode of kosher money but first a message from our friends at twilery I'm wearing their amazing polo shirt I have them in all different colors if you are in the market for new shirts new pants a suit a sports jacket socks if I had to describe them in one word it would be comfortable and professional but like hyphenate those words because I'm only allowed one word it's super comfortable and they look professional last week I showed you their jacket which has that stretch material and the polo shirts have them as well super super comfortable I'm actually losing weight so maybe I'll downgrade a size but if you are in the market for polo shirts they have these white shirts as well a button down which I really like you can get a short sleeve button down shirt button down all the way or you can get as a polo the material there is something like I've never felt before but don't take my word for it take your own word for it use promo code Hai c-h-a-i on twilery.com kosher money it will give you 18 off your first purchase we're gonna put a link in the show notes highly recommend it if you're not in the market for new shirts don't buy them but when you are in the market for new shirts buy twilery and now back to this week's episode the second one is the idea that not all money is created equal so I asked yellow and green two sets of questions the questions are logically similar but factually different I asked you to imagine that you bought 150 ticket to a play and as you were leaving the house you realize that you lost your ticket will you go and spend another hundred fifty dollars to buy that ticket I asked green similar question you're on your way to a play that's going to cost 150 you haven't bought the ticket yes yet and you realize that somewhere along the way you lost 150 from your wallet and you still have 150 left to buy the ticket would you buy the ticket so I asked this question to Ellie can I tell them Ellie said I gave Ellie the green question and the yellow question and Nelly said absolutely I would buy the ticket in the first one and he said absolutely not I'm sorry in the yellow as he said absolutely not and the green one he said absolutely yes ninety percent of you who got the green said yes you would spend the 150 from your wallet and only 40 percent of you on the yellow team said you would spend the 150 dollars to buy a second ticket and the reason is is that the thought to the yellow team to purchase a second ticket or for this play to cost you three hundred dollars was something you abhorred or at least 60 percent of you did whereas ninety percent of you who got question green said what does the 150 dollars falling out of my pocket has anything to do have anything to do with seeing the play you did not associate them one with the other and therefore you're probably wondering why am I even asking the question 10 of you said no because you were probably mindful of the fact that you just lost 150 and You're Gonna Save that ticket so you'll be net even but ninety percent of you said why not now if all money is created equal at the end of the night you are three hundred dollars poorer if you see that play whether or not it was two tickets to the play or it was a hundred fifty dollars from your wallet at 150 for a ticket you are in exactly the same place do you understand that that's clear right buying a ticket twice losing 150 on the way to the show and buying a ticket 150 still when you open your wallet at the end of the night puts you in the exact same place now this study has been done thousands and thousands of times and the vast majority of people answered the way you answered I then asked another biasing question question was you go to a store to buy a lap or you go to a store to buy a dining room set in the first instance for yellow it was a hundred dollar lamp and it was on sale for 75 dollars a few blocks away and in the green case it was a 1775 dollar lamp and you can get it for 17.50 five blocks away those of you who got question yellow seventy percent said they would travel the five blocks to save the 25 dollars Lakewood I'm proud to say green did very well 50 piece of you said you would still travel five blocks [Music] most often times it's less than 25 percent now you can see where I'm going with this right well some will argue well in the yellow case it's a 25 savings and in the green case it's a fraction why would I travel five blocks to save one or two percent right or three percent it's not worth it right in the other case you say well 25 is worth it right now if we would take off our mental accounting hat all that really matters is how much is your time worth and what is gas cost to drive five blocks those are the only inputs that really matter 25 is 25 dollars whether or not it's coming off of a hundred dollar item or 1775 item so why the 70 percent of you say yes when it was a hundred dollars and only fifty percent of you said yes when it was 1775. it's because of what we call the mental accounting bias I was in a car dealership recently and I was watching this and it was something to see it was a Honda dealership and there was a CRV on the on the floor and the people that were looking at it we're looking at the features and they said is there anything more that we can get in this car if we took a higher trim level and the guy said yes but the higher Trend level is going to be probably three to four weeks and it's going to be three thousand dollars more and they went through the different options that were available at that higher trim level and I watched the husband and the wife saying we don't need that we don't need that and then it came to the thing they thought they needed which is an automatically closing liftgate in the back a button a button and they said oh we absolutely must have that so I was watching all this and the salesman gave him a few minutes to think it over and I just meandered over and I said I'm just curious you realize you're gonna be paying three thousand dollars for a button that's an expensive button and of course the answer was if I'm spending thirty five thousand dollars on a car what's another three thousand dollars does that sound logical it's three thousand dollars does it matter if it's you're overpaying three thousand dollars for a bottle of milk or three thousand dollars for a car the end of the day it's still three thousand dollars and a person that's rational says it doesn't matter how you apply that three thousand dollars it's the same money mental accounting is fascinating it really is going back to my 2008 story where I became really fascinated with was I had clients calling me up hysterical that they want to liquidate their portfolios the Market's crashing it's going to zero it's terrible get me out and I asked a simple question would you like me to sell your IRA stocks so you have a personal account you have an IRA should I sell it all oh no no no no no leave the IRA alone the IRA is fine why is the IRA different than your personal account that's long term but do you realize that the stocks in your personal account are also long term and the answer is I don't see it that way I put a mental accounting label of long-term on my 401k and Ira but even though I've done thoughtful planning and that the stocks in my personal account are truly long-term the answer is since they're bucketed together with other things that are not so long term I think of that bucket differently than the IRA so I actually tried this with a client and it worked I said how about if we split your account up between your stocks your bonds and your cash and I retitle them long-term money and short intermediate term money would that work and he said well if you could show me that we can actually justify that my stocks are long term the answer is yes and it worked so I realized that mental accounting actually this is one of the best one of the reasons why IRAs are so effective is that we truly keep that money in a long-term bucket and we mental account for it and we leave it alone whereas all our other accounts we're constantly trying to maneuver in and out because we don't see it as something that's set aside people spend recklessly they are more cost-conscious with a dozen eggs than they are with buying a larger item they go to a restaurant they buy a suit they buy something that has a higher ticketed price and there fifty dollars up or down doesn't really matter to them but when they go to the store they'll try to save 25 cents here 40 cents here when they've blown all that the night before at a restaurant and then some because of mental accounting this doesn't bother them and this does you'll also find that people will spend windfalls money that they see as a windfall you'll you're probably not familiar because your old Lakewood benetira but I remember watching a show years ago called Who Wants to Be a Millionaire I don't even know if it's still on because I don't watch TV but and you have this person sitting there and they just won five hundred thousand dollars right and of course the host says so do you want to go for a million and the whole crowd is screaming yeah yeah go go go and the person goes for the million and sometimes they win most often times they don't and then oh we're sorry I always wondered imagine if at that moment it stopped the show oh I'm sorry Susan we've run out of time we're gonna have you come back tomorrow and then you can decide whether or not you want to go for a million dollars and in the meantime Susan what we're going to do is we're going to wire the five hundred thousand dollars into your checking account and tomorrow when we ask you the question you're going to either say yes and if you do you're going to write out a five hundred thousand dollar check and if no you get to go home I want you to imagine Susan coming back the next day sitting there on the seat and saying okay Susan do you want to go for it and everyone's screaming yeah yeah yeah and she's like are you out of your mind you're asking me basically to roll the dice and lose 500 000 that's already in my checking account the answer is there's no way she would do it if she's sane because at that moment it's no longer windfall at that moment it's her money had that not happened she was playing with funny money it's not real money this is what we call the lottery effect I made money on a stack I made money on an investment people tell this to me all the time I think it's time to sell only sell my cost leave the winnings in or leave the profits in I'm willing to play with that really is it different money than the other money or 24 year old who comes into my office and says I just inherited this money from my great-grandmother I'd like you to put it into a savings account or a CD for me I said but you're 24 years old I know but it's grandmother's money grandmother's no longer here but that has been mental accounted as grandmother's money I've met people I meet them every day that have six hundred thousand dollar balances on a HELOC today we all know the rates between six and seven or eight percent and at the same time they have savings accounts rainy day funds and I say to them why don't you take the savings and pay off the HELOC oh no I need to have savings but you can write a check from the HELOC if you run short no no I can't sleep at night if there isn't money in my savings account but you can write a check and it'll go right back in a second later and do you realize the spread between what you're paying on the HELOC and what you're earning in the bank after tax and they don't listen and this makes absolutely no sense but in their mind they have savings and they have loans but they don't see it as one decision it's also why we spend more on credit cards it's simple there's no pain in it we don't actually account for what we're doing for what we're truly doing which is depleting our bank account we don't actually mentally account for that we look at it as a swipe it becomes essentially unpaintful whereas partying with cash is seen it's accounted for mentally as a spend and a spend causes us to think twice because it comes with some emotional pain a quick break from this week's episode our official real estate question of the week for shmulshewitz of approved funding shmuel you do a lot especially in the real estate space who should be contacting you knowing that people worldwide are listening to kosher money so it couldn't be more true we're getting calls from people all over U.S abroad it's amazing it's incredible your reach I would say that the person that should reach out to me should be anybody who's interested in unbiased real estate Finance credit information specifically for things in the United States I also help people who are looking to buy or Finance in Israel but if you just want a friend in finance if you want a friend in real estate if you want to if you have a brother or brother-in-law that's in finance and real estate and you want to double check him or her to see if they're telling you the right advice call me up anonymously ask me the question I will give you the answer whether or not we do business together is not my goal my goal is to help as many people as possible get the right information learn what they want to learn and accomplish what they want to set out to achieve love that a human walking rolodexapprovedfunding.com kosher money you can find small and his company there highly recommend join the many hundreds that have reached out already and now back to this week's thousands whoa whoa don't go back to this week's episode yet it's thousands which is phenomenal makes sense I mean some of our videos have millions of views okay back to this week's episode now okay the next question I gave you two scenarios right you own 10 000 shares of ABC stock who feels greater regret right you name them George and David which has been soaring you decide to sell 5000 shares as you check the market the next day do you hope the stock Rises or Falls well most of you said fools I would say fools in fact I've spoken to some of my smartest clients and they all say I wish the stock Falls tomorrow that makes absolutely no sense you own 10 000 shares of the company you decide to sell half and now you wish the stock Falls the next day but emotionally doesn't that make sense you want to be Vindicated you want to feel that you made the right choice you don't want to feel regret and if your Market keeps going up with that stock the first reaction you're going to have the next day is why did I sell you so abhor regret that you would rather lose money than feel regret because since you still own 5 000 shares of this stock you're actually losing money the next day by there is by the virtue of it falling but that's okay I don't want to feel stupid I don't want to be regretful and the next morning the stack drops seven percent and you want to give kiddish you're so excited I was smart enough to sell 5 000 shares I'm telling you I've asked this question to some of my most logical clients and we laugh about it because we know how irrational it is but it just demonstrates how much we hate regret now I asked you to take this point forward two questions one is David and one is George the difference is David owns shares in company a and he decides or he has to make a decision whether or not to switch his stock for Company B and he decides against it and after a year he realizes he would have been twelve hundred dollars better off had he made that switch George home share and Company B and he switched to company a and at the end of the year he realizes that he would have been twelve hundred dollars better off had he made that's not made that switch at the end of the day both David and George would have been twelve hundred dollars better off had they made a different decision than they made you follow they're in the same place I asked you who feels greater regret David or George and you all answered except for five percent of you 95 said that George would have greater regret why it's simple George did something that caused him a twelve hundred dollar loss David did nothing and when you act and it doesn't work out it's far more painful than when you don't act and it doesn't work out now do you understand that it makes sense right now given that 95 percent of you agree with that we have to look at the ramifications this is what stops many people or investors from taking decisive action they don't want to regret their action so going back to the 10 000 shares scenario you own 10 000 shares of that stock a little voice inside says this stock has been going up a lot it's probably time to take profits and a little voice in your stomach says yeah but if you do and it keeps going up you're going to regret your decision I will tell you that most successful investors regret their sell decisions over the short term and regret their buy decisions over the short term because very few people sell at the top and buy all the way at the bottom I'm sure even Warren Buffett didn't buy all the stocks in his portfolio at a bottom he's willing to experience short-term regret but what he knows is going to be long-term gain but since we've realized through our questions that so many of us are biased by regret we have to take that into account when we're going to buy something part of our decision is going to be will I regret this and when I don't sell something when I should a big part of that's going to be I don't want to regret my decision even for the short term this is why a lot of people stay on the sidelines why do so many investors stay on the sidelines as markets are going up simple I don't want to be the sucker that buys in just before the market Falls I don't want to regret that decision and therefore I'm going to sit and watch this thing until I reach a point where I can't take it anymore which is when most retail investors capitulate and go in and the same is on the way down people will capitulate because they'll realize that if I don't sell now I may regret my decision after people make mistakes and they regret their decisions they cower in the corner and lick their wounds they stay out I still know people who never went back into the market since 2008. or people that sold out during covet because the regret was so traumatic to them that they never want to experience it again and therefore they'll keep their money doing nothing rather than run the risk of ever feeling that way again many people hold stocks that are absolute positive losers and in their mind they convinced themselves that they haven't lost money because they didn't sell and they're holding on thinking or praying that one day they can vindicate that decision and be right and never have to experience the regret of selling and realizing they took a loss that is absolutely ridiculous the only decision that an investor should make regarding a buy and sell is what are the prospects of this investment relative to all other Investments that I can make with that money I had this conversation today with a client I've had it with thousands of clients he owns a stock somebody told him to buy it it's down 65 percent he doesn't want to realize that loss and I said in that law says value it's called Capital loss yeah but I don't I don't want to lose this money on this stock I say fine let's hold the stock let's hold the sell the stack let's keep it out of the market for 31 days so we don't violate the wash sale rule for those who know that means and then we'll buy it back in 31 days of course he's not going to buy it back once he gets over the regret of selling it he'll make a better decision with his money so many people are sitting with very very bad Investments hoping it'll get better so they don't have to look themselves in the mirror and say I made a mistake and regret that initial decision and in doing so are costing themselves upside it's another reason why investors do things in herds because when everybody else does it and you do it and it doesn't work out you feel less regretful I had good reason to do it everybody else was doing it hurt mentality if you read about it is another detrimental aspect of investing okay we're getting to our last one if you are heading to Israel anytime soon highly recommend you look up the pantry Packers this is a division of KOLO Chabad and basically what they allow visitors and tourists to do is partner with call Chabad to help package groceries for the people in need in Israel so if you are there head over there to their website at least pantrypackers.org it's a division of call Chabad your entire family can be part of the experience and it really makes a difference I'm going to be there hopefully in a couple of months maybe less and God willing to plan on going with my family there kolhabat started in 1788 so you know they're doing something right regardless of gender ethnic background degree of religious observance there this food that you're packing goes to a family an individual in need because nobody in Israel should go hungry the important thing to remember is if you're not going to be in Israel and you can't help out by actually packing the goods on a voluntary basis you can actually give charity towards it so call chabad.org kosher money link is in the show notes the rewards are plenty right you're not only gaining a Mitzvah a good deed in this world but your Deeds your actions your charity especially as we come to the yamane run the high holy days we know it's charity can save people from Death so please give your heart give of your wallet open it up open your heart open your wallet and give call chabad.org koshermoney support the organization that is literally supporting tens of thousands of people across Israel from the north to the south from the East to the West is the best now back to this week's episode this is called anchoring here we had some fun I asked yellow team if the population of Canada was more or less than 20 million almost all of you said more you're right and then I ask you to estimate the population of Canada I can't say tallied up everyone but I got a vast majority of them the average was 25 million okay then I ask those same people what you estimate the tallest Redwood is how tall it is and if it's more less than 1200 feet well a lot of you actually thought it was a lot more so about 50 of you said more and 50 of you said less the average came to 2500 feet I am just looking at some representations I have three thousand feet two thousand feet two thousand feet a thousand feet and so on now I asked green the same question basically what is the question the question is what is the population of Canada and how tall is the tallest Redwood those are my questions but I started you off by giving you an anchor so the yellow team those of you got it still a 20 million for Canada the green team scored 100 million for Canada and for the Redwood yellow I buys them the other way I gave you 1200 feet for the tallest Redwood and the Green Team I gave you 180. now the average for yellow was 25 million for Canada and 2500 for Redwood now look what happened the other way green averaged to 110 million for Canada so I asked if it's more less than 100 million average came to 110 million so we have 25 million for yellow on the first question 110 million for green on the first question and then when we got to the Redwood we had 2500 feet for the Redwood for yellow we had 200 feet for green it's beautiful isn't it again I can ask this question anywhere around the world to any demographic and the same thing will happen what I did here was I anchored you I added you to a number which has absolutely nothing to do with the question you just assumed that if I said 20 million in Canada it's somewhere around there right so you stayed you were anchored to 20 million and you went to 25 million and I anchored you to 1200 and you went to 2500. now on the bottom one I just thank you to 100 and you went a little bit away from that to 110. and then I anchored you to 180 and you went a little bit away from that to 200. well the answer is the population of Canada is 38 million so I guess the 25 million people got it closer than 110 and the tallest Redwood is 364 feet now stop and realize what I just did to you because it's being done to you all around the place and you are making decisions that you believe are based on fact that have absolutely nothing to do with it because again you don't know the population of Canada because you live in Lakewood and I bet even if you live in Canada you wouldn't know the population of Canada because you probably don't even know the population of the United States and you have no idea how taller Edward is so you're looking you're grasping for straws give me something to go by and your mind quickly anchored to those numbers isn't that fascinating I think it is you might think who cares but let me show you why you should care I've been on Wall Street a long time analyst revisions is a daily occurrence they're constantly revising their estimates for anything company ABC makes 25 000 widgets analyst consensus that next year they're gonna create forty thousand widgets the next year they create 75 000 widgets and they're like oh so they revise their estimates and they say okay next year they're going to create 95 000 widgets the next year they create 150 000 widgets like oh we got that one wrong what they keep doing whether it's price whether it's earnings is they are anchoring to what is near now and they're not moving that far away because that anchor is keeping them there the same way it kept you where you were when the Market's going up we're anchored to a rising market this is what our mind has created this is also mixed with something called recency bias it's what's been happening and we're anchored to that and we don't stop and think what could possibly turn this thing the other way or vice versa we're anchored to a falling market and we don't stop to unanchor ourselves and say what can turn this market up and that's true with inflation and it's true with anything that is going on and King says anchored to a certain trend so many people believe that interest rates are going back down to where they were Wall Street people Main Street people who have this vision of a 30-year mortgage at 3.2 3.4 that's already high it was 2.8 2.7 10-year treasury at less than one percent their anchored to that it may happen it may not but if it does it has absolutely nothing to do with the fact that it was once there I've met people who grew up in a generation my mortgages were 15 16 17 and when they store an eight percent mortgage they couldn't believe it they said who gives away money at eight percent and then when it came down to three or four they said the world's gone mad because they were anchored to what they had grown up with and if you're making decisions based on an anchor of where a stock was right it's a bargain because it was 54 and now it's 27 and you're anchoring at the 52-week high or vice versa you're anchoring to the 52-week low and you're thinking the stock is overpriced because it's doubled since then that's a terrible way to make a decision we have to adjust to new realities we have to almost clear the board of what's been because history only teaches us so much and where an investment has been does not tell you what its value is and we shouldn't use that anchor the way you use the anchors that I put into this questionnaire or it's going to lead to investment mistakes so let's recap representation bias are representative bias means you make a decision based on full for your incomplete facts you see what's before you and you don't look deeper mental accounting means you treat different buckets of money differently regret aversion is why we stay out of good Investments and stay in bad ones and anchoring is why we are slow to adapt to new realities and we stay rooted in the past the solutions are you must seek out base rate facts like how many Librarians are there in the United States before you become biased by what you see before you don't let your mind play tricks on you like that first visual of the three guys in the tunnel look at your money and spending in totality 25 is 25 it doesn't matter when it's compared to the cost of something large or small it's the same 25 and it has the same purchasing power no matter what the scenario regret never hurts as much as we think it will as I told the client there's never been a death certificate issued where cause of death was regret we will get over it try to use mind over body Mind Over emotion if something isn't a good investment sell it you'll forget about it in three or four days sell a bad investment when you logically know that it's a bad investment or speak it over with somebody who can help you make that decision try to make financial decisions based on fact and not feeling yesterday is gone the 52-week low or the 52-week LIE don't matter what matters is what is the prospects of this investment right now and is it a good investment what is inflation now what is it based on what are interest rates based on what is the market valuation today don't anchor yourself to something that has absolutely no relevance I hope this was helpful thank you all for hearing me out [Applause] thank you so much for listening to this episode of kosher money we are rolling we got episode after episode after episode we can't thank you enough my brother does something cool he has a word of the week where when he hears an episode he tells the viewers to put a single word in the comment section obviously if you want to comment comment away but I want you to comment the word impactful if you see this I want to try to outdo him if you are watching this just comment like the video and click into the comment section write impactful if you are listening on a podcast there is no comment section I don't know why they don't have that um but head over to YouTube and search up this video and type the word impactful because the more comments the more views it gets the more people we can help and naftali Horowitz is a legend his videos literally have millions of views we didn't even put an intro on this video because he doesn't need an intro um Awesome event in Lakewood thank you to our sponsors we have approved funding look shmuel office link is contacts in the show notes highly recommended call chabad.org kosher money give a much needed donation and thank you to our friends at twilery I'm wearing one of their shirts right now more people if you are in need of amazing shirts pants suits socks they've got more on their website twilery.com so they know that we sent you thank you to our friends at livingsmarterjewish.org if you need financial advice right you're just not sure who to speak to or whatnot they have a ton of free resource free resources thank you to zevi Simon and everybody there at the OU's livingsmarterjewish.org if it's your first time here we have bonus content on mishbacha.com our publication partner we have bonus content there every couple of weeks they release a new um bonus episode on and then more content in their magazine so subscribe you can get it delivered to your door thank you to you right because without you we wouldn't be here so many people have reached out we love feedback so visit livingleheim.com koshermoney that's I don't even know if that's a URL just go to living the client.com click on the suggest Tab and tell us who you'd like to see next tell us what you love about kosher money tell us what you don't love about kosher money I'm actually going to be in Israel um as I said and I'm going to be recording a couple of awesome episodes there that can only be recorded in Israel so I'm excited about that and this outro doesn't have to be any longer so I'm going to stop talking thank you again really appreciate all of you and we're just getting started have a good one living look I am foreign [Music]

Channel: Living Lchaim

Views: 230,721

Keywords: jewishpodcast

Id: Uh1HnB_WXLA

Length: 63min 25sec (3805 seconds)

Published: Wed Aug 30 2023