Torcana Podcast 35: How to Overcome Big Risks & Fears When Investing

Torcana Real Estate Investment with Colin Murphy

Torcana Podcast 35: How to Overcome Big Risks & Fears When Investing

Host Colin Murphy is back in the podcast booth after a summer hiatus to talk about the fascinating topic of risk and how important it is to accept it and to have a healthy appetite and respect for it.

The risk or more accurately the fear of risk is the reason a lot of people don't invest in real estate or stop investing at the first sign of trouble. We often trip over ourselves when it comes to investing because of the way we subconsciously think about losses and gains. Our brains are hardwired by millions of years of evolution to be more afraid of losing than afraid of missing out on a gain.

It is an instinct that helped our ancestors protect today's food rather than risk it for more food tomorrow. When people were hunter-gatherers who lived on the edge of survival every single day, that was a very helpful instinct to have and for the majority of our existence as a species, it served us well and didn't disappear just because we had agricultural and industrial revolutions.

Getting back to the 21st Century, the technical term for how we subconsciously place far more importance on avoiding losses than accumulating gains is called loss aversion and it affects a huge range of decisions we make all through our whole lives.

Example 1: Many people either hoard too much of their wealth or invest it in ultra low-risk products that generate little interest or protection against inflation.

Example 2: People to avoid selling a stock that is falling because they cannot accept the reality of a loss and paradoxically, the same fear causes people to sell a stock too quickly after it rises just to lock in some profits.

Using theses and other incredible real-life examples, including how casinos & big corporations exploit our fear of losing to their own advantage, Colin discusses how to move beyond these ancient instincts when making both small and big decisions.

Recommended Books

"Thinking, Fast and Slow" by Daniel Kahneman