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148 Don’t Make Me Say I Told You So

Fear can trigger these impulses in investors, all of which usually
have a negative effect on investment returns:

► Herd mentality: The tendency of investors to follow the

crowd in and out of asset classes

► Loss Aversion: The impulse to take action to avoid or
limit perceived losses

► Recency bias: When it comes to investing, few emotions

do more harm than “recency bias.” This is the tendency
that investors have to extrapolate recent events into the

future indefinitely. If things are going badly now, things
will continue to go badly in the future. If things are going

well now, there is nothing but clear skies ahead. Recency
bias tends to exert a disproportionate influence on

decision making for many investors.

Greed

The other emotion that prevents many investors from doing

well when making investment decisions is greed. The desire to

make quick and easy money can also lure investors into making
decisions that aren’t logical, but based on emotion. Though a
much less powerful motivator than fear, greed has hurt many

investors over the years.

Chapter 4: The Most Common Investor Mistakes