In this six part series, we'll
uncover not only what is

behavioral finance, which we'll
go through in this video, but

we'll also talk about those
biases. Specifically, what are

those biases that make up
cognitive biases and emotional

biases that lead us astray and
lead us to make not the best

decisions that we could make.
Now, this is critical

information for syndicators and
funds, because we're buying

assets for our investors in
order for them to make money.

But everybody has these
underneath the surface. And once

we can identify that, hey, these
are what they are, it will make

us better investors, because we
can either mitigate them, or

learn to deal with them and find
workarounds. So they don't pose

a problem to ourselves, and
ultimately, our investors.

I know you're gonna like this
six part series on behavioral

finance, it is very important to
know because it's going to make

you as a syndicator, or a fund
manager, understand how to make

better decisions, when it comes
to choosing what assets to buy,

when to exit all those decisions
that you have to make to make

money for yourself and for your
investors. So let's go through

from a higher level, what is
behavioral finance? Now, I said

in the beginning introduction
that evolved in the 1990s. So

what happened was this, we have
a world that we could call the

Orthodox financial world.

In that orthodox financial
world, there was a process or a

way that we looked at finance,
it started with the premise that

all individuals are rational.
That idea that all individuals

are rational, and that finance
itself was a rational process in

order to make money. So risks
were assessed and thought about

and waited and scored and
figured out what made the most

sense, right, it was a very, you
could basically put it all into

a calculator, at the end of the
day, a number would be spit out

of not only how much money you
should invest, but what sort of

return you should get. This
still goes on today. And it's

still extremely important. It's
part of our financial modelling

that we do, whenever we do
financial analysis for any kind

of property or any kind of asset
that we're going to be buying,

on behalf of our investors are
selling, it's part of the

underwriting process for us to
go behind. So it's still very

present. But it starts with this
notion that everything that goes

on here is a rational process.
So out of this rational process,

we use all relevant info to make
decisions.

Right, we're very rational
people, we use all the

information at hand in order to
do it part of that due

diligence, making sure we
understand what all those risks

are, we can score those risks,
we can come up with scenarios

and do scenario analysis and
Monte Carlo simulations to make

sure we understand at the end of
the day, what our risk levels

are, and that the likelihood of
success of returning this and

getting a real value for our
investors and for ourselves.

Right, that's, that's part of
the original way of thinking. So

we're still doing that again
today, right? So we still we

still do that. And out of this
comes efficient markets.

So that was the idea of that
everything in the marketplace is

efficient. So the pricing comes
together by buyers and sellers

all with all the information,
making rational decisions. And

so the outcomes were basically
predetermined. You know, there

were things that were already
Oh, that would happen and move

the numbers, but everybody would
always agree on what actually

something was worth and what
you'd pay for it. Well In the

90s, people started saying,
that's not what we see at all.

We see people who are paying
crazy prices for things, we see

people that are not spending
money for things that are great

opportunities, what is going on
here, we also see people who are

not who are so afraid of, of
selling at at a at the wrong

time, that they'll stay in long
after long after something is

done, putting good money after
bad after bad after bad. Keep

investing that money to keep
that decision if you're making a

flow. Now, why does that happen?
If we're all rational? Well, it

doesn't, it doesn't happen. And
so this is the idea that, Oh,

maybe this orthodox idea is fine
for an ideal, right? It's a good

starting place for what we
should aspire to, and how we

should come up with things. But
it also isn't real. It isn't

real in the sense that it's not
actually what we see happening.

What we see happening instead,
is behavioral. Is that out of

these things? There are major
psychological factors at play.

Psychological factors are
changing our minds. They're the

lens that we're looking at, for
through the Orthodox things, but

we're still making decisions.
And we're still trying to

analyze, and that's influencing
the numbers. And this is what

explains those anomalies. Right?
Is that the psychological

factors that are coming into
play? Or would explain it?

That's why things are sometimes
you have crazy prices on things

that make no sense at all. I
mean, I'm sure you know, of

assets that just don't make any
sense. Maybe it's your favorite

stock. It's like, how on earth
could that be trading in 1000

times earnings? Or does it even
have earnings, and it's trading

so much? And it's such a
terrible idea? Well,

psychological factors are the
what are what's at play here.

And behavioral finance is
shifting those things. Right. So

behavioral finance is, is
accepting that individuals

behave irrationally. Not all the
time, obviously. But they do

have a tendency to behave
rationally, we make decisions

very quickly, sometimes that are
snap decisions that are

terrible. Sometimes they work
out, sometimes not. And that, to

do that, individuals we use
rules of thumb.

Or heuristics and shortcuts. I
don't think you'll find a human

being on the planet who doesn't,
you know, it's so accepted.

Behavioral Finance is real. So
that's what behave, how

behavioral finance kind of came
to be a recognition that there

are things happening that are
completely unexplainable outside

in within the by Orthodox, the
Orthodox financial models that

we have, behavioral has to be
playing bar, and you've seen

this in your everyday life. So
there are actually two kinds of

biases we have cognitive and we
have emotional so these are two

different sets of biases that we
know that we have, and then what

we can look at through this lens
of behavioral finance. So this

is what came out of it is that
we have these different ones.

And when I now in this video,
we're just going to talk about

what those two are kind of
compare and contrast. In the

next videos we're going to go
through in detail the different

actual biases that exist. So I
know you'll find these useful.

Cognitive cognitive biases are
caused by faulty reasoning. So

it's us trying to be rational
and reason things out. But

mistakes happen. And so that
could be mistakes, interest

processing whatever it is that
we're doing, right, or it could

be memory errors remembering
things wrong incorrectly, or a

lack of understanding.

Have topics like statistics
right can lead us astray? So

it's just faulty reasoning. The
idea was good. We wanted to be

we wanted to make things in a
rational way. But there was just

a myth. The machine wasn't
working quite well, quite right.

It made a mistake. So that's the
that's just a faulty reasoning

problem. It's a cognitive
problem. Now, these can be

mitigated.

Buy through education. Advice.

And information.

Right? Because if they're just
cognitive problems, if it's just

the reasoning, it was broken, in
some some manner, the logic that

we were applying was just made,
who there was an error in, that

can be solved? Right? I mean,
it's just part of it. It's a

very formulaic thing. It's it
can be solved. But what's

different is emotional. Right?
So these are caused by impulse,

or intuition. So there are
mistakes that we make because

we're acting impulsively, or
we're just relying on intuition.

They're spontaneous. They're due
to feelings, or attitudes that

we have about certain things.
There are ways for us to

decrease the pain and increase
the pleasure. Now, how do we

mitigate this? I don't know. The
best way we can do is to

recognize that we've got these
emotional biases going on. And

if we can recognize that they're
going on, we can adapt ourselves

to them and change our processes
in order to diminish the effects

of them to make the the negative
effects that are there go on,

also gives us an opportunity to
question them to say, Well, why

am I thinking this way? Why am I
choosing to be impulsive and

make this this kind of decision,
because maybe that's something

that needs to be checked on a
much higher level, and fixed. So

in this net in these next
videos, so five videos after

this one, in this six part
series, we're gonna go through

those each individual biases,
we're gonna go talk about what

the cognitive biases are. Well,
then we're going to talk about

what those emotional biases are,
and then figure out what can we

do about them. So I know you're
gonna find these videos helpful.

I'm very excited to get to
present this information to you

because I know it's going to
make you a better syndicator

it's going to make you a better
fund manager. It's going to give

your investors more money may
make sure that they're that what

they're ultimately investing
into is better quality. It's

relying on what your magic is,
because your magic isn't in

making spontaneous and impulsive
decisions. Your magic that

you're bringing to the table is
the opportunities for them to

invest in things that go through
your proper reasoning that

you've thought about, that
you've come to the right

conclusion that match up with
your founder investment theory

and make them money and make you
money at the same time. My name

is Tilden Moschetti. I am a
syndication attorney with the

Moschetti Syndication Law Group.