In the book Nudge – The Final Edition, Authors Richard Thaler and Cass Sunstein give a very powerful example when explaining the Availability Bias.

***
A quick quiz: In the United States, are more gun deaths caused by homicides or suicides?

In answering questions of this kind, most people use what is called as the availability heuristic. They assess the risks by asking how readily examples come to mind. Because homicides are much more heavily reported in the news media, they are more available than suicides, and so people tend to believe, wrongly, that guns cause more deaths from homicide than from suicide. There are about twice as many gun inflicted suicides as homicides.

***

What does this example instruct us?

Our Environment (what we see every day) influences our thinking and behaviour.

What has this got to do with investing?

A lot more than you might give it credit for. Your Environment dictates what you are likely to end up doing as an investor.

Surround yourself with braggarts who are always talking about their trading wins and how they made more money today; you are then likely to open your trading account and start trading yourself.

Remember junk technology stocks in the late 1990s and lately meme stocks and shitcoins. People buy these things because of what they are reading in the media and hearing from their friends. So, and so has become a millionaire by just doing this. It’s simply difficult to resist acting on this newsfeed.

James Clear, Author of Atomic Habits, writes “People often choose products not because of what they are, but because of where they are. If I walk into the kitchen and see a plate of cookies on the counter, I’ll pick up half a dozen and start eating, even if I hadn’t been thinking about them beforehand and didn’t necessarily feel hungry. Your habits change depending on the room you are in and the cues in front of you. Environment is the invisible hand that shapes human behaviour.”

The Environment is at play in everything that we do. When I go to Foodhall (the grocery store), I am pretty sure I need 5 things. My shopping cart always ends up having more than thrice the number of things I need. Not only was I wasting money (yes coming from a financial professional), but I was piling up some unhealthy sugary stuff.

While willpower and motivation would have taken me only so far, I knew the solution had to involve changing the Environment or designing an ideal environment for buying things I need.

So, what did I do? What was the solution for me?

1. Stop going to this store.
2. Go at a time when I only have 10 minutes to pick up things I need.
3. Order on Swiggy (App), the specific things I need.
4. Call the local vendor and get the things delivered.
5. Send someone else.

The fact is that this worked for a long period of time until I broke the Environment a few days ago.

James Clear writes “Environment Design is powerful not only because it influences how we engage with the world but also because we rarely do it. Most people live in a world, others have created for them. But you can alter the spaces where you live and work to increase your exposure to positive cues and reduce your exposure to negative ones. Environment design allows you to take back control and become the architect of your life. Be the designer of your world, and not merely the consumer of it.”

A typical investor environment includes the following:

a. Content from Financial Media as well as Regular Media (including Print, TV and Online).
b. Advertisements everywhere.
c. Events
d. Market Movements (Think about this. In the Real Estate Market, there is no daily index or prices to watch. Rarely do people panic when real estate goes down (except for those with very high leverage). However, the stock market runs a different movie every day.)
e. Content from all the Financial Institutions including your bank, asset managers, and life insurance companies.
f. Content from Self Proclaimed Experts (Disclosure: I am no Expert and don’t even claim to be one – I am a Life-Long Learner and would say intellectually curious too). There is a lot of rubbish floating on YouTube, Twitter, Instagram and now on TikTok.
g. Friends, and Family. This is a group that is likely to influence a lot. This includes your workplace buddies and acquaintances as well.
h. Fake News and stories that are planted with a malafide intent.
i. There are many others, and you might want to add your own to this list.

Look no further besides the stock market correction of 2020 and now the trading mania that is taking place all around us.

Between February and June 2020, many investors simply withdrew their investments. Many were waiting for the right time, and some are even waiting today.

However, the recent stock market and crypto performance have now got many new people into trading crap stocks and shitcoins. Our environment and recent events have the power to change behaviours and get many to forget about the basic principles of risk management and wise investing.

How should you protect yourself from such caustic environments?

By creating your own. A key part of that revolves around working with a real financial professional. The 2 key questions to address are:

• Who are you listening to?
• What are you consuming?

The care and counsel of a Real Financial Professional can be to help you design environments where you thrive as a wise investor. The goal is to ensure that you are feeding meaningful things in your brain that will help you find success as a long-term investor. A Real Financial Professional is not in the business of managing investments. She is in the business of managing investor behaviour and comes between investors and their costly mistakes.

The equivalent of a gun in investing is the pornographic financial content you consume whether from the 24*7 news cycle, or the print media and lately even from general entertainment and sporting channels.

Removing this gun intentionally from your environment will be a key win for you.

While most of us are willing to make changes to our food diet, we often neglect our content diet, which is the type of information we feed our brains on a regular basis.

It’s time for a Reset.

What is your Content Diet and your Environment Like?