Episode Details

Maybe you're too biased to become a successful property investor?

What do I mean by that?

Well…did you know that we can sometimes be our own worst enemy as property investors?

It's not because of the decisions we make, the opportunities we consider, or the investments we miss out on, but rather, it's due to the way we think.

By the last count, I've read that there are 188 types of these fallible mental shortcuts in existence, and they constantly impede our ability to make the best decisions about our careers, our relationships, and for building wealth over time.

So, whether you are a beginner or an experienced investor, whether you're in business or an entrepreneur you'll enjoy my chat today with Mark Creedon, founder of Mastermind Business Accelerator as we discuss why seemingly rational people act irrationally when it comes to money.

Cognitive Biases You Need to Know

Without always knowing it, property investors are pre-programmed with a range of biases which may cause them to interpret information incorrectly and thus undertake sub-optimal investment decisions.

You see, most of us think we're rational people but we're not.

There is no shortage of cognitive biases out there that can trip up our brains.

However, because cognitive biases are based on generalizations and assumptions, they can't always be correct.

And if you don't check your reasoning, they can lead to judgments and decisions that negatively impact your business.

1. Confirmation bias

People tend to search for information that confirms their view of the world and ignore what doesn't fit.

In an uncertain world, we love to be right because it helps us make sense of things.

One way to counter confirmation bias is to read things you're going to disagree with. In other words, read all you can from reputable sources, whether it's confirming your original view or not.

2. Anchoring bias

We have a tendency to use anchors or reference points to make decisions and evaluations, and sometimes these lead us astray.

This is because the initial price you set for a house or car or more abstractly, for a deal of any kind, tends to have ramifications right through the process of coming to an agreement.

Whether we like it or not, our minds keep referring back to that initial number.

It's important for you to evaluate any property deal based on its own fundamentals and all the information you have available from your research and due diligence at the time.

3. Awareness bias

How are your investments performing – are you happy with the results you're getting?

It's been shown the poorest performers in all areas of life are the least aware of their own incompetence, a phenomenon known as the Dunning-Kruger effect.

If you're the smartest person on your team you're in trouble.

It's best to work with a team of mentors and professional advisors.

4. Positivity bias

In the face of lack of capital growth, prolonged vacancies, or inflated expenses, some investors continue to believe that their investment will turn the corner "one day."

The problem with this is that when all signs point to a dud investment, it likely is one – but positivity bias can stand in the way of an investor taking action to rectify the situation.

One of the best things an investor can do is