Do you suffer from Endowment bias?

It has happened to us all.

Lets go back to the beginning.

In 1980 Richard Thaler hypothesized a theory known as the “endowment effect”.

Thalers paper titled "toward a positive consumer choice”, was published in the journal of Economic Behavior & Organization. According to Thalers theory, people feel an asset is more valuable simply because they own it.

This is an incredibly strong cognitive bias that when mixed with ego can become a combustible force to your investing

I, from time time to lurk around Discord rooms and Twitter spaces. I like to see what retail are thinking.

For the last few months, I have watched people add and add an add. I have seen them say this is a great spot to buy when no where on the chart was it telling you so.

These were not pumpers. They were very day investors using 401ks.

I thought, what are they seeing? How do they keep adding? When will the cash flow run out.

The market has spoiled some, with the purchase of assets that continue to make new highs adding to the subconscious ego.

So when the asset tops out, support is broken and lower lows continue the brain does everything it can to convince you this is still a good position. Your brains main focus is to protect the ego from having to admit a mistake.

As a fun little exercise, or maybe a not so fun one, have a look through some of your charts and pose some questions.

Did you recognize the trend changes? Did you take action on the new information?

Is it possible you allowed your emotional connection to get in the way?

This is possibly one of the biggest reasons why I am such an advocate for TA.

It is fixable. I promise.

Have you fallen victim to the endowment effect?

The first step to controlling it is ;

AWARENESS.

As always reach out on Twitter if you want to chat, agree or disagree.

Love hearing from you all.

Till next time.

Trade safe. Trade Beautiful.

Les xoxo