This is the second part of
cognitive biases, we're gonna go

through three more cognitive
biases. And this is part three

of a six part series on
behavioral finance. Why are we

talking about behavioral finance
because behavioral finance

shapes what we do as fund
managers and as syndicators.

It's the assets that we acquire
and the analysis that we go

through, get swayed by our own
natural behavioral psychology,

right. So those things are
absolutely true, they happen.

We're not purely rational
decision makers as much as we

want to be. So in this series,
and what this is going to do,

it's going to talk about that
second three set set of three of

the cognitive biases. In the
next video, we'll talk about the

last three, and then we'll start
talking about what those

emotional biases

So in our first video, we talked
about what behavioral finance,

in our last video we talked,
began talking about what our

cognitive biases are. So let's
switch to the whiteboard and see

where we're at. Here are the
biases. So last time, we talked

about conservatism, confirmation
and control. And this time, we

are going to talk about
representativeness, hindsight,

and framing. Our next video will
go through anchoring mental

accounting, and availability. So
let's go through hindsight,

representativeness, hindsight
and framing, what are those and

what's going on? So
representativeness is the idea

that the past will repeat
itself. So it's a false false

belief that the past always
repeats itself.

This is why you'll see on when
you look at the website for any

kind of investment, a lot of
times you'll see, you know, past

results do not indicate what was
gonna happen in the future.

Right? It's not indicative of
that. Because what happened in

the past doesn't always repeat
itself, right? I mean, you

certainly have events that
change things radically, the

market forces itself or changing
the past, or changing what's

going to happen in the future.
But aside from that, we have

black swan events, we have other
things that are always changing

it. It's what this causes it to
do is it causes investors to

invest in hot investments. So
you'll see massive trends and

towards certain things. Like we
always see people going into,

into, okay, right now, self
storage is really hot. And so

people are flocking to self
storage. Next, it might be data

warehousing facilities, again,
it was like that before, maybe

that'll come back. And it'll be
hot, because we've got aI hot,

and maybe that'll be the next
thing. Not sure. But whatever it

is, it causes people to see,
they see great returns, and so

they think, okay, that's the
next great return. Right? So we

can go to that, again, it's
going to repeat itself. One

thing that I oftentimes saw was
where my office used to be in

Los Angeles. So I would hear
constantly about why to invest

in multifamily because it always
in the market, and you would

hear it pray this way. The
market always increases the

multifamily at a, at a much
greater pace than rent growth,

rent growth, getting prices at
about two or 3%. But the

appreciation on properties
always appreciates up 5%. That

is a pure example of
representativeness, that what

may have been a historical
trend, but it does not fertile,

what's going to actually happen?
Because at some point, it's

going to change, right? I mean,
at some point, well, if rent

growth isn't this appreciation
is going to have to slow down at

some point because it's not
going to trade at 50 billion

times what the rent is, right?
It's just not going to happen.

So there's a point where we
can't see cap rates get pressed

down anymore. That's one example
of where it happens. But you

certainly see it in other areas
as well. So you point to well,

you know, right now, AI is very
hot, right? So an investment in

AI into an language model. Open
AI is now valued at 83 billion I

think it is. So the next
language model we should

certainly invest into because
it's also going to be at a

evaluated at 3 billion, but
that's just not true. Right. It

may be valued more might be
valued less might be valued and

nothing, I don't know. But it's
that representativeness that we

need to get away with, we need
to actually do the financial

analysis not rely on past
results. Now past results can

help influence us, right? It can
say it's a data factor that we

should combo that we should put
in. But it doesn't mean that

it's always going to happen. We
can't use those as placeholders

without thinking through them as
placeholders. All right,

hindsight. Hindsight, is always
2020. That's exactly what this

means, right? So it could be
that your investors say, you

know, you are the best
syndicator in the world, we

always make, make 30% IRR. Well,
yeah, you may be I knew it going

in, because, wow, now we made
30% I knew we were gonna make 30

I knew it. I knew it was gonna
be 30. I know that you were

saying it was 20. But I knew it
was gonna be three. That's an

example of hindsight bias.
That's a saying, well, that,

that the future was predicted,
or that the current state was

predicted by you know, I that
you knew it before, when you

didn't know it before. Really. I
mean, that's why it was there.

So it what this does is it
creates a false sense of

confidence. So it decreases the
perceived risk of what's going

to happen. And that's, that's
something that needs to be be

thought through. So when you're
choosing an assets, or when

you're choosing assets to buy,
are you relying on hindsight,

are you relying on? Are you
saying that? Well, I know that I

should just keep doing this,
because just like

representativeness, you know,
it's always been this way. And

then you tell the investors?
Well, we knew it was going this

was going to happen, because it
happened? Well, you can't really

do it that way. That's
illogical. So I'm going to put

this as the hindsight is 2020.
Problem. All right. The third

one is called framing. So
framing is it's a tendency to

interpret information, not based
on the pure information itself,

but based on its source and
presentation. So let's say you

have two opportunities you're
looking at. Right? This one

hired best marketing team in the
world.

It looks so great. Oh, my
goodness, this brochure is

amazing. It's got like 3d photos
on it. And it's got, like,

there's a video player that
opens up and it just looks

amazing. And they hired James
Earl Jones to do the voiceover

for man. It's a great, great,
great asset. And this one looks

just like it's been written in
crayon. And so you automatically

make the decision that okay, I'm
going to adopt this one, because

surely it's better. I mean, they
hired the marketing team in

order to put it together. And
James Earl Jones did the

voiceover. It's great. And I
look at this one, when the

information may have been way,
way, way better in the in this

one. So framing is that bias
that we take place that based on

the frame, think like a neuro
linguistic programming

definition of frame, so the lens
that we're looking at it

through, that's what we choose
to gravitate to, we tend to

filter things out based on that
and not look at beneath the

surface and say what is the
actual information that's being

portrayed here? And how reliable
is actually the information? Not

the package for the information?
Right. So a five year old may

say, this is a great investment,
but he hires James Earl Jones,

it's gonna be very, very
different than you've got, you

know, a ccm with, you know, 20
years of experience in doing

syndications and knows
everything about the market and

finance and everything in there.
Also a CFA you know, what we

discounted because the package
isn't nice. So that's what the

the framing bias is. My name is
Tilden Moschetti. I'm a

syndication attorney for the
Moschetti Syndication Law Group.

I'm also a syndicator and a fund
manager just like you. So part

of what I bring to my practice
is the legal documents and all

of those things. Absolutely. But
kind of also why I'm putting

together this video is because
as a syndicator, as a fund

manager, I understand the issues
that you're going through. I

know what sort of things come
up. And these these ideas of

behavioral finance absolutely
come up, how do I know because

they come up for me. And so if
they come up for me, I'm certain

that they come up for you. And I
thought it would be helpful for

us to work together and define
what those are. So that way we

can stomp them out. Ultimately,
we we take control we mitigate

the damage caused by these
emotional and cognitive biases.

What happens in the end, our
investors get better results,

you get better results. It's a
win win across the board. So

again, my name is Tilden
Moschetti, Moschetti Syndication

Law Group