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Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level


'To invest successfully over a lifetime does not require a stratospheric IQ, unusual insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.'
—Warren Buffett

It's no secret that if you want to master the market, your best role models are the most successful investors. They evaluate new information and consistently use their knowledge to make winning decisions about whether to buy, sell, hold or stay out of the market. Their edge is not that they know more than we do. They succeed because they think differently, using decision-making strategies to avoid the natural thought patterns—or cognitive biases—that hold us back in our investing.

Think Like the Great Investors uncovers the most common cognitive biases that can undermine our investment decisions and provides practical strategies to manage them. It will help you develop a mindset that leads to investing excellence through superior decision making by avoiding potential traps like confirmation bias, mental accounting, sunk cost bias, the natural tendency towards overconfidence, and being carried along by the crowd at turning points in the market.

In a clear and simple style, this book shows you how to:

  • recognise your natural cognitive biases, and how they can distort your investment decisions
  • employ proven strategies for overcoming your biases and improving your investment performance
  • develop the art of contrary thinking to avoid being carried away by crowd behaviour at the top of bull markets
  • manage uncertainty with greater confidence.

Learn how the great investors think in order to raise your investing to a new level and join the winners' circle. Think Like the Great Investors shows you the way.

COLIN NICHOLSON BEc, SF Fin has been investing his own money in Australian shares for over 45 years and publishes his returns on his website He has taught both technical analysis and fundamental analysis at a postgraduate level. Students at the Securities Institute of Australia rated him an 'Outstanding Presenter'. Colin has been a highly ranked speaker at Australian Investors Association and Australian Technical Analysts Association conferences as well as being a sought-after speaker to investing associations and at expos nationally. He has written five books on investing, including Building Wealth in the Stock Market, The Psychology of Investing, The Aggressive Investor, Hot Stocks 2007, and Hot Stocks 2008.

About the author xi

Important note xiii


1 Shaping our destiny 3

2 Men and women (overconfidence) 7

3 I am absolutely certain (overconfidence, confirmation and availability) 13

4 Mine, all mine (mental accounting) 33

5 Why we never learn (reinforcement and punishment) 41

6 Love is blind (cognitive dissonance) 47

7 A little knowledge is dangerous (representativeness) 53

8 It must be tails next (the gambler’s fallacy) 59

9 Dangerous rewards (random reinforcement) 69

10 How much is it? (anchoring) 73

11 Reconstruction (hindsight) 81

12 Why we get it wrong (disposition effect and prospect theory) 87

13 We cannot change the past (the sunk cost fallacy) 95

14 I remember it all too well (availability revisited) 101

15 What goes up . . . (small numbers, reversion to the mean) 107

16 What is it worth? (overreaction) 113

17 He who hesitates is last (inertia) 119

18 What do you want to do? (regret) 127

19 Ask why not? (confirmation revisited) 135

20 I want it now (impulsiveness, immediate gratification) 141

21 Tell me why (randomness) 147

22 It can’t happen (normalcy) 153


23 Mob rule (crowds) 163

24 Notes and commentary on Gustave Le Bon's The Crowd 169

25 Contrary to popular belief . . . 187


26 Nine keys 195

27 Failure traits 199

28 Dealing with loss 203

29 Plan to succeed 207

30 Seven investing sins 211

31 The wall 215

32 Capitulation 219

33 Tough going 225

34 Be early 229

35 Blinded by fear 235

36 Conquer fear 239

Further reading 243

Index 247