The Mentor’s Laundry List Of Mental Biases

Emme Chan @GoodPlace HQ

In about an hour right after I published the article on using mind hacks last week, The Mentor had sent emailed me a PDF document with a short message –Consider this my CNY ang pow to you. Turn to page 22.

The PDF was a scanned document of an antique looking book with no cover. I then turned to page 22 as he had asked me to. It was a list of the common mental biases that would pretty much determine if a property investor would be successful or otherwise.

I had told The Mentor that I had wanted to make GoodPlace the ultimate repository of information and data on Malaysia property, available to be accessed by anyone. He listened to my plans, and then told me, “That’s fine, Khai Yin, but having access to information is only the start. Whoever who interprets information correctly will win the game.”

I’ve taken the liberty to produce this list of the biases which I have compiled from The Mentor’s document for your reference. Use it to learn to recognize the common mental biases so that you’ll be able to parse information accurately and make better, more informed investment decisions!

 Mental Bias #1: The Hindsight

This is perhaps the granddaddy of all cognitive biases. Also known as the “I knew it all along” effect, this bias causes people to overestimate their own abilities to predict a result or outcome that couldn’t be predicted in reality.

As the popular saying goes, hindsight is 20/20. The next time you get caught up telling yourself that you knew it all along that location so-and-so is going to be hot, stop. Recognize your hindsight bias and instead go do some solid prospecting groundwork.

 Mental Bias #2: The Control

I’m no fan of the stock market because of one thing – I don’t have any control over the stocks. (That’s also why I like investing in businesses that I have majority control – and yes, I like investing in businesses ahead of property).

In property, the degree of control that you exert on your investments is also somewhat limited (although you might think that you have got all your bases covered). Indeed, whether your property will appreciate in price depends much more on macroeconomic factors like supply and demand than, say, your choice of paint for your exteriors or if you have got the ceramic tiles for your front porch from HomePro or Kedai Ubin Chin Huat.

If you think that you’ve covered all your risks, you suffer from control bias.

 Mental Bias #3: The Stockholm Syndrome

The Buyer’s Stockholm Syndrome refers to the phenomenon where buyers would justify their (often expensive) purchases by overlooking obvious negatives or defects. This is common especially among buyers of expensive stuff – big cars, gold watches, exotic yachts… and you guessed it – property. 🙂

Here’s an apt definition of the Stockholm Syndrome as nicked from Wikipedia –

Expensive purchases often involve a lot of careful research and deliberation, and many consumers will often refuse to admit that their decision was made in poor judgment. Many purchasing decisions are made emotionally, based on factors such as brand-loyalty and advertising, and so are often rationalized retrospectively in an attempt to justify the choice.
Wikipedia

If you’re considering buying a property, ask yourself if you could identify any defects or drawbacks (such as locational disadvantages, traffic conditions, alignment, views, layout, etc). Trust me: there’s no such thing as a perfect piece of property, and if you could not see anything wrong about the property at all, you’re suffering from the Stockholm Syndrome.

 Mental Bias #4: The Confirmation

Confirmation bias is closely related to the Stockholm Syndrome. We tend to form opinions first (often times emotionally), and then (subconsciously) look for evidence which supports our opinion while rejecting data points which do not. Indeed, we are hard-wired to give more weight to external opinions that are congruent with our own.

Out of all the cognitive biases, this might well be the most dangerous of all. Many (most?) buyers make their purchase decisions based on emotional factors, although they may well think that they buy on pure reason alone.

 Mental Bias #5: The Calibration

Let’s face it – as investors, we are all playing at different levels. I, for one, am not in the same league as these people (and I have never claimed to be). The “weekend” investor with three houses has a vastly different skillset compared to someone who manages a family office with a portfolio of luxury apartments across Southeast Asia.

Many novice investors suffer from “calibration bias”, and just because they made some money flipping some houses during the boom years, they think they are infallible. Unfortunately, experience in property investment just does not scale that well. For example, just because you made some money selling a Mont Kiara apartment two years ago it doesn’t mean that you can en bloc an entire KLCC condo now and make millions.

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Hi khaiyin,

    Nice stuff, do you mind to share your mentor’s document?

    Would like to try my own interpretation after reading yours. 🙂

    thank you

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