Cognitive vs. Emotional Biases
An investor’s behavior is commonly influenced by an accumulation of attitudes and biases that can create anxiety during transitionary times. Financial education and experience can help alleviate such influences and provides investors with an opportunity to address their fears and alter behavior.
 
There are two distinct groups of biases: cognitive and emotional.

Cognitive biases address the mental processes of investors based on established concepts that may or may not always be accurate. The “bandwagon effect” is commonly associated with the idealization of investing along with the crowd and sometimes provides investors with heuristics to locate a simple solution to a complex issue. Heuristics are commonly the culprit for investors utilizing past performance as an indicator of future performance by making a premature decision rather than obtaining all information available to make a fully educated decision.

Emotional biases are based on the investor’s personal feelings when a decision is being made and can be influenced by prior experiences that alter the decision-making process. Overconfidence bias is commonly associated with the investor’s hindsight of overestimating the likelihood of the desired event while underestimating the probability of an adverse event. Loss aversion bias is the emotional and psychological bias that focuses more on avoiding losses (pain) than making gains (joy)— this can create a negative cycle of holding onto losing positions longer and selling winners too quickly.
What are you to do as an investor?
Logical and analytical thinking can often mitigate the desire to lean on biases when making critical financial decisions. Acknowledging the emotions associated with investing can also help provide habits to approach the decision-making process more rationally.

At G&S Capital, we believe in using a disciplined investment process with rules-based guidelines. Emotions are easier to combat when you already have a strategy in place.
7887 E Belleview Ave.
Suite 1225
Denver, CO 80111
(303) 773-8000
Follow our Insights on LinkedIn!
At G&S Capital, we build dynamic portfolios and risk management strategies for each of our clients. Our mission is to be the most valued professional relationship our clients have by providing in-depth education, effective communication, and a level of personal attention that exceeds expectations!
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by G&S Capital LLC [“G&S]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from G&S. G&S is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the G&S’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.gandscapital.com. Please Remember: If you are a G&S client, please contact G&S, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
 
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your G&S account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your G&S accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Source:
https://www.investopedia.com/articles/investing/050813/4-behavioral-biases-and-how-avoid-them.asp
https://www.investopedia.com/articles/investing/051613/behavioral-bias-cognitive-vs-emotional-bias-investing.asp
https://www.businessinsider.com/behavioral-biases
https://www.forbes.com/advisor/in/investing/4-common-investment-biases-you-should-avoid/