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The 5 Biases of Independent-Minded Investors

Overemphasizing data that confirms your beliefs and over-reliance on readily available information top the list.

Michael M. Pompian, 09/18/2014

This month's article is the ninth in a series called "Deep Dives Into Behavioral Investor Types." This series is intended to help advisors create better relationships with their clients by deeply understanding the type of person they are dealing with from a financial perspective and being able to adjust their advisory approach to each type of client.

As we learned in the last series, there are four behavioral investor types, or BITs: the Preserver, the Follower, the Independent, and the Accumulator. As noted in previous articles, the learning process for each BIT will be a series of three articles:

1. Part I will be a diagnosis of each BIT and discussion of its general characteristics.

2. Part II will be a deep dive into the biases of each BIT.

3. Part III will be how to create a portfolio for each BIT.

This article is Part II of the Independent BIT.

 

As previously reviewed, the biases of Independents tend to be cognitive--relating to how people think--rather than focusing on emotional aspects--relating to how they feel. The biases of the Independent BIT are confirmation, availability, self-attribution, conservatism, and representativeness.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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