It’s so easy to think of the stock market as something “out there” in the sense of being outside of us … even objective. Its data-driven … and mathematical.

It doesn’t get any more objective than that, does it?

If you’ve been investing for any considerable length of time, then you know that there is also a very tangible subjective aspect to successful investing. It is so tangible, in fact, that it is arguably the most important aspect of investing that the self-directed investor needs to consider.

If you don’t believe me, then just ask your local financial therapist.

Wait. What? Seriously? There really are financial therapists?

You betcha.

In fact, in 2009 the first professional association of financial therapists was officially formed — the FTA … Financial Therapy Association. The group even publishes a Journal of Financial Therapy, to showcase the link between financial knowledge and personal well-being.

What exactly is financial therapy?

One source from the FTA described it as “the integration of cognitive, emotional, behavioral, relational and economic aspects that promote financial health.”

There’s a lot to consider in that description.

I mention all this, not because I think that you’re going to find a lot of helpful resources from the FTA. The FTA is, after all, focused primarily on providing resources and services to financial advisers who are finally realizing what I’ve been saying for 10 years now … the “individual” part of individual investors matters.

I mention all this to impress upon you that this stuff is serious and that every investor needs to factor it into their plan for success in the markets. Yes, investing is partly an information challenge. But it also has a very personal and subjective aspect to it as well.

I recently came across the below graphic from Business Insider.

It beautifully captures many of the personal behavioral biases we independent investors must face every day. I know that the detail will be hard to make out but you can access the full articlehere.

It’s definitely a list worth reading. I’ve printed copies for myself and my close colleagues and friends.

Below are some of the most common dangers I see for investors.

Before you read my comments on each bias, please read the summary from the Business Insiderdescription first.

Anchoring bias (#1)

We constantly “anchor” to our original purchase price, as if it were some cosmically meaningful price. It isn’t. It’s just your purchase price.

Bandwagon effect (#3)

I don’t think that this one really requires much elaboration.

Confirmation bias (#7)

This one is so seductive. We want to be right. We want to be smart. It’s effortless to give the information priority that confirms that we are both right and smart.

Outcome bias (#11)

Judging your investment decisions by whether or not you made money or lost money is certainly part of the story … but it isn’t the whole story. You need to judge the process that you used to create that outcome. Is it repeatable and reliable?

Overconfidence (#12)

The smarter you are and the more accomplished you are in other areas of your life, the more likely you are to lose money in the markets, if you’re not careful. Overconfidence is the single biggest contributor to underperformance. Of course, there are plenty of people out there who are happy to make money off of your overconfidence.

Recency (#15)

Just remember that the latest piece of “news” that you hear from the media about one of your investments is likely only a small part of the full story — even if the media would like you to believe otherwise.

It’s helpful to understand what we’re up against as investors so that we’re ready to effortlessly make the tough decisions when the time comes.

Sincerely,

Richard M. Smith, Ph.D.

CEO & Founder, TradeStops

Editor’s Note: Our friend Richard M. Smith has spent the last decade researching and developing algorithms and services that are designed to give individuals an investing edge. On Tuesday, July 5th, Dr. Smith will be revealing a “Secret Number” that can help investors to double their investment returns and lower their risk … without buying any new stocks! Keep an eye on your email tomorrow for all the details.

Richard M. Smith, Ph.D. is the founder of TradeStops.com, a Web-based stock tracking program. TradeStops synchronizes and tracks online portfolios to empower individual investors to enjoy managing their own investments.

http://www.uncommonwisdomdaily.com/do-you-need-financial-therapy-22911