Avoiding the Known
Yesterday, I mentioned an odd human behaviour in some (most likely most) of us where we consciously add great movies or series to our favourite streaming service watchlist; only to almost always pick something completely different to actually watch, whether right then or later. Post here.
Very counterintuitive, considering how our choices to add to the watchlist reflects our likes and interests.
It surely has something to do with Daniel Kahneman’s System 1 and 2 thinking, where the content that makes it to our list is probably something that might need more System 2 deliberation, whereas in the moment which is often at the end of a tiring day, we don’t have much processing juice left, tending to pick something lighter to watch.
Interestingly, Peter Lynch has something similar to point out with regard to investing. He is the legendary American investor who managed the Magellan Fund at Fidelity Investments between 1977 and 1990. During his 13-year tenure, assets under management went from US$18 million to $14 billion, averaging 29.2% annual returns, more than double that of the S&P 500 index. It was the best-performing mutual fund in the world!
According to Mr. Lynch, many regular folks like us who work in a given sector tend to avoid investing in the same sector; instead choosing stocks in other sectors, where we might have far less working knowledge of.
Again, very counterintuitive, considering people invest to make higher returns, and yet we are actively inclined to not consider stocks of companies that operate in the industry sector of our profession or business. Tricky to explain that in System 1 & 2 context given it is hard earned money we unnecessarily increase the risk of.
If you invest in the equity market, is this something you unconsciously do too?
