Watching your portfolio crash can lead to costly mistakes.
John Forlays III, a professor of economics at Duke University, says that people rely on certain behaviors to make decisions. Understanding these trends, especially when there are large amounts of money on the line, will help you invest better.
Rules, as Forlines calls them, are heuristics. And they are used to solve problems.
According to Forlines, the biggest mistake investors often make is to reevaluate recent events. This trend is called the shift in accessibility and is divided into two categories: vibrant and recent. When major events fall into one of these two categories, they are more likely to distort your perception.
Watch this video to learn more about the rules you can apply to investing and how to avoid falling victim to your instinctive thinking.