Attitudes that Destroy Your Wealth

attitudes. And in this episode of the affluent entrepreneurship, we're going to talk about a number of attitudes or biases that come into play that can absolutely rob you blind and what to do instead. So I look forward to seeing the episode, and see how we can move you forward seeing the episode.

complete freedom. Because that's what it really means to be an absolute entrepreneur. Hey there, welcome to this episode, the absolute Entrepreneur Show. Have you ever heard this? Boy, do you have an attitude problem? I know that I've heard heard a grown up I hear it even now sometimes. But here's what I mean by this. The question is really, do you have a money attitude problem? And I think actually a lot of us do, including myself, I am not

exempt from this. Here's here's the reality is you've heard me say before that most people don't have money issues. They have behavior issues that cause money symptoms. And when we understand that, we start to realize that, oh, wait a second, if my money is a symptom of my behaviors, and my behaviors are there, well, the behaviors are a result of my thinking. And my thinking is adjusted because of my attitude, how I approach it,

or as I call them, bias. It's the way we process it's the way we interpret it's the way we see things, through our eyes, through our experience and through the things in fact, if you look at the definition of it, that's exactly what they say it is they literally say it is an error. It is an error in thinking when processing or interpreting information, an error in thinking when processing or interpreting information. And think about this when it comes to money.

Often our money stuff is learned through observation, we don't talk about it, we don't teach it, we don't do anything unless you're part of this group. And you're part of this journey with me what we're talking about it we're having the conversations we're teaching, we're giving you skills, we're giving you stuff that allow you to process things more effectively. Most of us have grown up learning about

money through observation. So we observe, we interpret, and then we decide, but sometimes our interpretations are incorrect. And there's what I would say, eight primary biases that can actually destroy us that literally rob us blind from our

financial wealth. And I think that when we start to understand how they impact this, what you can do about them, you can then navigate more appropriately and make cleaner, clearer decisions without the biases that can make you make bad decisions that can help you, you know, assist you in making bad decisions, if you will. And so I want to walk through some of these biases to give you an idea of what it may

take to work through this. And at the end, I'm going to give you some things to correct the biases, things to do things to have, because here's what I know, if we can manage the biases, if we can get clarity on the biases and say, Oh, I get it. All right, I'm going to push

that aside. And we can think differently about our money, we will think differently about our wealth, which means that we will act differently when we act if and when we create a habit of behavior, a system of behaviors that get us different results. And so that's the thing that I

want us to start to look at. And so what ends up happening is that we start to interpret something that happens and carrying it to a different place where we give it a lot more credence, a lot more credit and a lot more weight than it deserves. And then we start to make bad financial decisions. I'll give you an example. And so the first bias is what we call what I call the infallibility bias. Okay, the infallibility bias. This is really about confidence. This comes into

play. This comes into play when someone when someone turns around, and they actually get a quick win. I actually think I remember I remember this. So my son the first time he went to Las Vegas, he said, I'm gonna play craps. My buddy's going to show me how to play craps. Now, inside I'm going good. All right. All right. Be careful because you can lose a lot. My hope was that he lost a little bit. So he would get a lesson.

Because the mistake that happens is too often when we when we get confident, we think we're infallible. We think I got this. I can't tell you how often I see this in the stock market. Listen for 1112 years to 2020 we had nothing but up and and people would come to me and go, I've been killing it in the stock market. I've been killing it in the stock market. Everything's going up everything I touch turns to go live got the Midas touch. Go do you have the Midas

touch? Or is it just the fact that the market is on a terror? It's going up like crazy and has been doing it for years? Well guess what? They thought they were infallible. They're the same people that jumped into things without a thought without the analysis without the logic without the processes without the systems that we teach or that we talk about. And they literally thought I can't go wrong. I have the Midas touch.

And guess what, when the market corrected, when the market went to bear territory, when the market is being as volatile as it is now they get hurt. See, the infallibility bias is something where we become way overconfident. We are blinded by the prior successes. And so we continue to do things flippantly as if we can't do any wrong. So the key here is this when you have the infallibility bias, if you feel that tendency of, of I can't do anything wrong, I can't

do anything wrong. The important thing then is to sit back and say wait a second. I need to challenge my assumptions here. I need to know that I work a Plan C when we work with when I work with my elites or clients, my one on one clients, for my masters cleaning my small group, when I work with them, the primary thing is to is to one, create a plan to create a plan.

So we have a place to operate from, we don't go into an investment without understanding what the plan is for the investment to get in to get out how it fits into the overall financial plan to create a finite path to financial freedom. And then we start to challenge the assumptions. Is this the right investment? Am I thinking about it correctly? What happens if the market turns on me? How do I get out? What do I do? Okay? It's what I call

stress testing the plan. Okay, but too often, we don't plan, we think that we're going to win, because I won before, I can't do any wrong. So we don't do the due diligence. We don't do the work, we don't evaluate the investment the way we did in the past. And then we get hurt. So with the infallibility bias, the thing that you want to do is make sure that you have one a plan in place and to you challenge the assumptions in the

plan. Okay, that leads me to bias number two, oh my gosh, this, ah, I fell prey to this a lot. Okay. Sunk cost bias, the sunk cost bias. Let me move that. This is a bias where we've invested money into something. And because we've invested money into something we've actually we won't let go of it. We, it's, I put money in and I'm going to keep putting money in because I made that decision before and in order for that decision to be right. I got to keep funding it. I did this in the Ponzi scheme.

But we need to look at things through a new set of eyes. You might have felt this at times where well I can't get out because I already put money in. There are people right now that have bought into stocks and the stock dropped 20 3040 50% and they stay in it because of how much they invested Prusa. Think about this. Think about it in the crypto space. Bitcoin at one point was almost seven The 1,000th of a coin is down at 20.

Those people that bought at $60,000 and sitting on it and 20, they are sitting back and a lot of them are holding on going. I put 60 in, I'm just not going to get out. Here's the question you got to ask here. And this is something that I got caught in also. But ask yourself, remember, the overall objective is to build financial freedom to build a money machine, that's going to take care of us to build a portfolio that's going to generate the income and the cash flow to

support us. So we got to ask the question, we made an investment based on hopefully a plan, hopefully a stress tested plan. We challenge the assumptions, because the infallibility buys, we've done all that stuff. We look at it. And now we say with a clean line, yes, I invested $10,000 $1,000 100,000, whatever it is, with a clear mind and a clean slate, not because we put money in. But ask the question, how does holding on to this? Or adding to it make this a better

investment for me. I added to the Ponzi scheme, how was adding to a Ponzi scheme gonna make it better for me? It didn't. That's the short answer it didn't. So we may have made a bad choice of an investment. And if we did, and things don't turn out, right, you get out and you move on, you make a new choice, we don't stay in it. Because the sunk cost in the tendency is to do that, oh, my god, well, if I don't sell, I won't take a loss. But the loss

is there. And if the stock isn't coming back, or the fundamentals have changed, or the investment has changed, it's time to get out, lick the wounds and move on. This is why the plan is important. I did a video just recently about the whole whole thing of before you enter an investment, you have to know the

exit of the investment. Because if we don't know what the trigger is to exit the investment, we will tend to stay in it longer than we should we'll change the rules when we shouldn't we'll adjust our perspective to fit what we want to make happen. Okay, which leads me to another bias. So in this the sunk cost bias, you want to ask the question, how does holding on to this or adding to the position going to make this a better investment? And if the answer is I don't know, then maybe we should be

rethinking? Okay, bias number three, bias number three. You probably have heard this term before confirmation bias. Oh my gosh. This is when we start to look for things to prove our point, without looking at things that are disproving our point, we want things that are going to confirm our position moreso than those that might challenge the position. One of the things that happens, one of the most powerful forces in human nature is to stay consistent and congruent with prior decisions.

And so if we made a past decision to make an investment, and we attach ourselves to that decision, the tendency is to look for all the evidence that confirms that we made the right decision in the first place, and exclude the evidence that might say, Oh, we might want to rethink that, that that probably wasn't a good decision. Listen, I've been plenty of bad decisions. I've lost lots of money in investments. I've continued on and I've done

enough to be successful. But the fact of the matter is, is that unless you're willing to take the position, say look, I made a decision. I'm not just going to look at the evidence that supports that decision. I'm going to look at the evidence that challenges the decision and be open to it. You're going to use this confirmation bias to just keep supporting it bad decision potentially. And so you

want to be aware of this. And the way to do this, again, is if you have a plan, but also also to look at it through two other ways is one to have an advisor, a counselor, a coach, a mentor, someone like me, that will challenge the decision before it's made. Challenge decision after is made, and really start to test the assumptions to be able to look at and say, Well, what if it did this? And then I want you to ask yourself and say, am I open to new

perspectives on this? Because if we're not, we'll tend to lean towards the confirmation bias and only look at what we want to look at, because it proves what we want, and not the stuff that might disprove where we're at. So here's the question I asked some of my clients do, I said, Well, I want you to ask the question or answer the question, what would happen if my assumptions around this choice, this bias? Were 100%? Wrong? Then what? What would you do?

What would the decision be? And what's the possibility that we are wrong? When we understand the downside, and we test those assumptions through that, we tend to push back on the confirmation bias. But if all we look for are the things that prove our point, and not the things that challenge our point, then we will see it through jaded eyes. Okay, that's confirmation bias. The next one, number four, number four, is loss aversion. Bias. All right. So here's the thing, loss

aversion. The interesting thing is that, we will do more to avoid a loss than to capture again, that tendency is to make sure that we're not willing, I don't want to take a loss, I want to take a loss I don't want to take and what ends up happening is actually we don't take, we don't make a decision because we're afraid of the loss more than we are afraid of the game. We're not looking at the possibility of gains, here's the

thing. When you go into investing, no matter any investment, I don't care how risky or risk free, they tell you, there is always a balancing point, there's always a balance of here's the return, in other words, what you can make, here's the risk of making it or not making it and you have to weigh those, the higher the return, typically, the higher the risk. If you want to double your money in a day, you're going to take on a lot of risk. It doesn't

come without the other. And if someone's promising you that run. I watched a popular podcaster host ask someone, what would you advise someone if they said they had $10,000? And they wanted to make $100,000? In a year 10 exit? No, wait a second, how many investments are you going to find? That can 10x and investment in a year's time and not be risky? It was, it was a

ridiculous question. In the sense of look, you never look at I gotta make money without taking the miseration the risk side of making that money because there are plenty of ways that you can make money, you can go and bet everything at the roulette table and roll and spin the wheel. And you could make a killing, but you could lose it all. You got to look at it through risk and reward, it's called the risk and reward

paradox. And one of the things that we do, and the things that I would look at is take a piece of paper, take a piece of paper and split it in half. And on one side, make sure you were you list out all of the things that are good, and that that could be good as the reward side of it. On the other side, I want you to list out all the things that are risky and could go wrong with it. Because until we look at both sides of it and say, Okay,

this is what could happen. What the potential cost of it is is we tend to lean towards the risk side and be afraid of risk more than we are going and saying is it worth the risk to take to

make this every investment. So why we do risk tolerance, risk capacity, and, and all of those analysis for people because every client, even my elite members and my masters members, we will spend the time to understand what your risk level is your capacity to take on risk your tolerance to to facilitate the risk all of those things because you can't make an investing decision without looking at the risk profile to make it happen. I did a whole episode on that. We'll hook it

up in the shownotes here. But point being is that there's always a risk reward trade off. If I want higher returns if I want to make more money faster. I'm probably We are going to take on more risk, which means that I have the chance to lose more. In other words, if I'm going to invest 10,000, what I invest $10,000 To make $11,000, my 10,000 plus 1,010%. If there was a chance I could lose the whole 10,000. Okay, reward 1000, risk 10,000. That's the weighing

you need to do. But loss aversion puts a lot of weight on the loss side, and we don't look at the return side. That leads me to the next bias. This one is an interesting one. And this is endowment bias. And this is this is really an interesting one, when you start to understand what it is when you own something, this is the endowment, the ownership of it, where you turn around and say, Look, I didn't really value it, but now that it's mine, I value it more. That's the endowment

bias. Okay. They did a study, it was really interesting. They did a study where they gave him like a coffee mug, and something else, two different people. And they let them sit with the coffee mug. I don't remember what the other thing was, but two different things, the let them sit with it for a day. And then at the end of the day, they said, Do you want to swap? In the people, literally everyone wants to know, this is my sous nine, ah, when they started the day, it wasn't

theirs. When they started the day, they didn't have it. When they started the day, it wasn't on their desk. But now because they had it for a little bit. They took ownership, they raised the value. And they don't want to give it up and down bias. Here's the question, because here's what happens. You get into an investment. And now you own it. And you raise the stakes in your ownership in a way that you say, oh, no, no, no, no, this is mine. It's mine. I'm not

gonna give it up. So the question you got to ask is if I didn't own this investment now? Would I invest in it today? Or is it my the sheer fact that I own it, I don't want to give it up. I went through this with Facebook. I got into Facebook way early, before the IPO at $17. Facebook, as you know, ran up close to $400. Now I had a bunch of shares ongoing, this is great. I wouldn't let go. I

wouldn't let go. And then Facebook earlier in the year, missed earnings, and dropped 100 bucks a share 100 bucks a share. Oh sunk cost bias, confirmation bias, endowment bias. All of them were playing havoc with me. But had to look at and say, if I didn't own the investment now, would I invest in it would with what it's doing? And I said no. So what did I do? I sold all my Facebook stock. Okay. It was $100 down from where it could have sold it. But it was way up from where I was at. Since I

sold it. Since I sold it, that stock has dropped another $200 A share $200 A share had I held on to it with a downward bias, confirmation bias and all of that stuff sunk cost on a road that train all the way down and lost another $200 a share. And, and so instead, I made a bunch of money on Facebook. And I didn't want to enforce Facebook stock but I don't have any attachment to it anymore either.

Okay, but when that attachment gets too great, we start to adjust our thinking and we start to not think about rationally and and it actually took a coach to say let's talk about this. Would you invest in this? What's the story? Do you like the story? Do you like the path do you like this and I go now then seems like your decisions made and right. Sold. And I want you to just tank from there. All right. That leads me to the next bias. The next bias number six

is recency bias. And this one people are struggling with right now. Okay. And this is when we give inordinate amount of weight to recent occurrences. Okay. So, in other words, they're looking at saying, the market is so volatile, I don't want to invest in the stock market even think about depression, babies, okay? How they respond, the things that recently happened have a greater impact in our life and our choices and our decisions, especially when we start to extrapolate them to the future

as if they're permanent. Look, the market goes up, eight out of 10 years, up out of eight out of 10 years. But we might be in this downtime, that all of a sudden, the markets down, it's in bear territory, and now we've had some really good, good weeks. Okay, but who knows, and it goes down. So what we remember the recent memories, the volatility, the slide, the hurt, the pain that I'm looking at my account is down 20% is 30% 40% down, whatever it is, are you are in Bitcoin and went

from 60,000 to 20,000. You say this is the new reality. The reality in the stock market, but reality in the in real estate is they go up and down. In the long term, the market goes up. In the short term, it's a rollercoaster ride. But too often, we allow the recent events to take hold, and give them more weight into the future than what we should. And the way to counteract this recency bias is to always work from a long term plan goes back

to having a plan. This is why you need a mentor or a coach or an advisor that's going to help you facilitate creating a financial plan to your financial freedom to build into this is one of the things we do with the elite members where we we build the plan, and then you stress test the plan. And now when all of a sudden the emotions of that reasons the buyers come in, we go Hold on, let's pull the plan out. What is the plan, say? Oh, we started make decisions contrary to the plan? And is

that supported? When the market tanks, 1100 points or whatever? You know, I talked to my wealth team. And we talked through we said, let's look at the plan. I'm not saying that I'm exempt from the emotions, I get the motions just like you. And I oh god, did we make a wrong decision? Nope. Here's the plan. We stress tested it, we know what it's going to do. We've got

it in place. So you got to work from a long term view and a long term plan and not allow the shorter term recent events dictate what might be happening long term. We know the market goes down in the short term. But we also know that it corrects and continues up, you just got to look at any long term chart 10 years or more market goes up. Even real estate, it may be slower. But a lot of real estate long term goes up. Okay. So recency bias becomes an issue,

we need to look at it. But that's the reason that we have a plan. Next bias. Seven is framing bias. Oh my gosh, this is something that I see happen with people that are trying to trade stocks. What happens is that they decide I'm going to buy a stock because I'm short a stock or I'm going along a stock or an option. And they decide that they're going to get into an investment because they expect it to go down. Or they

expect it to go up. So what ends up happening, I'll kind of draw this out, so so they get into a stock they buy here. And instead of this, they expect the stock to go up. But instead of the stock going up, it starts to go down. Now, remember I said earlier, that you always know what your exit is, before you make the investment? Well, if it was someone working with me, they would have had something called a stop loss, or we would have known if it goes down to

here or out. But what ends up happening is that most people don't have a plan. Most people don't have the exit drawn out. And so when the stock or the investment goes the wrong way, instead of them getting out when they should have they say, well, instead of this going to be I originally thought this was going to be 30 days held. Well, now I'm just going to make it a long term. So I'm going to hold

it for six months. So what they did is they reframe the timeframe to fit a narrative that they're trying to tell. Well, this will come back so I'm gonna now hold it longer. But when you went into the investment, the intent was 30 days, when you went into the investment, the intent was it for it to go up and you'd get out. When you went into the

investment. You said if it was going to go down and if it hit this point you get out but now you're going to ignore that and you're going to Say, instead of being in it for 30 days, I'm going to be in it for six months. But what happens if at six months, it's not where you want it to be? Then you turn around and reframe it again, you go to 12 months, sees what ends up happening with the framing bias as you start to change the rules to fit a narrative to get potentially an outcome that you

want. This is a little bit of a confirmation bias coming in. This is a little bit of the loss aversion bias coming in. This is a little bit of a sunk cost bias coming in. But when we constantly change the rules, or reframe the rules, Reese reframe the timeframe, because it didn't do what we wanted it to do. That's when we start making bad decisions and bad choices. Okay, leads me to the last bias, and then I'm gonna walk through some things to watch out for the last

bias. And this one you got to be really careful about is what I call the bandwagon bias. Oh my gosh, this was crazy. Because this is you can call it you can call hurting, or the meme or anything like that. This is why Gamestop did what it did. The reason that Gamestop ran up to 400 bucks a share was because everyone jumped on the bandwagon, there was no economic reason for it. There's no reason for that stock to be at that price. There's no reason for any of it. But what happened was,

it was a meme. People were talking it up. And people said I don't want to miss it. I don't want to miss it, you jumped on the bandwagon, they wrote it up, there was a lot of people that made a lot of money on the way up to 400 bucks. There's a whole lot of people that lost a lot of money on the way down from $400. Because they got on the bandwagon, late. So we need to be aware that when the emotional poles of FOMO when the emotional pulls Oh, everyone's getting it.

I've talked to three people, they made a whole lot of money doing this, I need to get in. That should be your alarm. That should sound the alarm for you to say, Whoa, wait a second, am I jumping on the bandwagon here? Because that's how you're gonna get hurt. Meme stocks hurting bandwagon, however you want to call it? When we start to move in concert with everyone else and put logical analytical thought out the window, that's

when we get hurt. So the way to counteract this bandwagon bias is to make sure that you have sound analysis that you have investing rules. I give people investing rules. We say do not you don't do these things. And you follow the rules. When I didn't follow the rules. I got hurt. It's how I got on the pawns. Here's how I lost that money. It's how I got in trouble. Because I ignored my rules. Nope, we set the rules before we start, we follow the

rules throughout the game. If some people make a billion dollars on the bandwagon, good for them. Because there's some people that lost a billion. Okay. So I'm not going to jump on the bandwagon with anyone unless the analysis, the testing the plan, and the rules. Make sense. All right. Hopefully that makes sense. So those are the eight biases, I think really Robbie, what do you do, then?

What do you do in making sure that you keep these biases these attitudes, if you will, at eBay, and I think that there's six things you can do. The first is this. Manage your emotions. biases, by and large come from an emotional response and emotional interpretation to something that has happened. And when we make emotional choices, with our finances, typically

they're not good choices. So the way to do this, one of the things to do this is to make sure that you have a coach and mentor someone that is a sounding board that you can talk to, that you can go to when you feel the tugs of emotion, come into play with your financial choices, your financial decisions, okay? The second thing that you can do so manage your emotions. Second thing that you do is seek out contrary opinions. Intentionally

challenge your thoughts. It's the reason that you have coaches is the reason you have mentors is the reason you have advisors is the reason we build a community so we can challenge the assumptions and we can look at the contrary thoughts to make sure that we're thinking through all of it. Okay. Number three avoid developing unhealthy attachments to a particular investment, like I did with Facebook, great companies are not always great investments.

And vice versa. Great investments may not be great companies. And too often, if we get an unhealthy attachment to an investment to a company to investment itself, we hold on longer than we should we give more than we should have. And we lose a lot more than we should. Okay, so we avoid developing unhealthy attachments again, PLAN test rules. Number three, don't chase yesterday's winners. Okay, don't chase yesterday's

winners. Here's the thing is that if you hear if you hear any investment advisors, they will typically say past performance is not an indication of future results. We still look at past performance. But if we look at a company say there was such a good company, so gotta invest because they did so well. I'll give you a company. Okay. I was a great company. Polaroid, some of you are probably too young to know, a Polaroid was a phenomenal company. But just because it was a great company

in the past. Is it a good company to invest in today? I don't think so. Because what we're investing in is someone's future, not someone's past, the past might give us an indication the past might give us a story, but it isn't telling us about the future if we don't look at the future. So every investment is about looking forward and say what will it do for me in the future? Not what did it do in the past, it may have been the greatest company in the past.

There's not a good company today than we don't chase yesterday's winners. Next one, number number five, be cautious when following crowd. If you're listening to me to if you're following social media, look, there's a whole lot of people out there touting Oh, no down real estate and all kinds of stuff. Be careful of that. Look for their bias, how do they make the money? When you start to follow the cow crowd, you start to risk getting on the bandwagon. And not being making

an informed decision. There's plenty of people that try to get me into investments. And I go, here's my list of rules. Here's my due diligence list. Here's my analysis. Here's my plan. If it doesn't fit the rules, if it doesn't pass muster with the due diligence, if it doesn't fit the plan, it doesn't become an investment for me. And if someone else makes millions of dollars on it, good for them. But you stick to the plan, you stick to the rules, because by and large, you will lose less

winmore That way. All right. And the last thing that I think you need to look at is to focus more on detailed analysis versus stories. There are a lot of people out there that can tell a great story about an investment. But that story, what does the data show? What does the analysis show? Is it if you test the assumptions, Does it still make sense? The stories are great stories in you know, pull out emotions, but emotions in financial decisions are not good. So I'll take the stories,

I want to hear a good story. But then give me the data, give me the numbers prove to me that this makes sense for me to put money into it and invest into it. And then I'm going to make not only my money back but a return on my money in the future, return off capital and return on capital. If that's not the case, then you I don't care how good the story is. There's plenty of people that come on Shark Tank. And they have a great story. And it's a wonderful story. And people love

the story. And the sharks love the story. But the sharks make the decision not on the story. They they make it on the numbers, they make it on the possibility they make it on the risk versus return and they do a quick detailed analysis on it before they make a choice. They don't make a choice in the store and the same thing goes for you. So those are the things that I do manage your manage your emotions. Look for contrary

opinions. Get a coach, get a mentor, get an advisor that you can use as a sounding board board. don't develop let's say unhealthy attachments to specific investments. Don't chase yesterday's winners. Be cautious of following the crowd and use detailed analysis with some rules in place that will change Your Money attitudes and keep you safe on the journey to

financial freedom. I hope that this helps, I hope that you got a chance to see some of this in a way where you go, Oh, maybe I do some of that because you know what, I'm not exempt. I think I've had all of these in my life and I still will see them creep up, but I have a way to remedy them, I have a way to counteract them, I have a way to move through them. So I don't allow the emotions of the bias to to create bad interpretations of things that I'm going through and make bad decisions that can

hurt me financially. And that's where I want for you so, so be aware of these. I hope that this helps. And I look forward to seeing you in an upcoming episode of the affluent entrepreneurship and until then, always, always strive to live a life and I wish you cheers Thank you for listening to the affluent entrepreneur show with

me your host Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to mele ram.com Ford slash group and I'll see you there