Strategist: Investors Need To Sharpen Their 'Rational' Behavior

[ Fri. Jan. 21. 2011 ]

Human psychology can work against investors trying to make the best financial decisions, notes Nicholas Colas, chief market strategist at ConvergEx.

In a commentary this morning, he suggests that clients consider ways to "sharpen the rational part" of their investment psychology. Colas writes:

"Human nature, as it turns out, is a veritable minefield of biases and distortions that push rational thought through emotional screens to the point where clearheaded thinking can mutate into irrational outcomes."

One of the most cited mantras of investing is to "think and think differently," the piece adds. Along those lines, Colas points to early investors who were insightful enough to put money into such companies as IBM (IBM) and Apple (AAPL) before they became giants of technology.

He believes investors should ask themselves: What scientific concept would improve everyone's cognitive toolkit?

Colas notes that's a question which has also been raised by theĀ Edge Foundation, a think-tank run by John Brockman. Members of the foundation range from music producer Brian Eno to Nobel Prize winner Daniel Kahneman and Nicholas Taleb, author of the "The Black Swan."