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

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through three more cognitive
biases. And this is part three

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

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talking about behavioral finance
because behavioral finance

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shapes what we do as fund
managers and as syndicators.

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

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through, get swayed by our own
natural behavioral psychology,

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

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

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

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

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

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

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emotional biases

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

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

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

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

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

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are going to talk about
representativeness, hindsight,

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and framing. Our next video will
go through anchoring mental

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

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representativeness, hindsight
and framing, what are those and

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what's going on? So
representativeness is the idea

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

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belief that the past always
repeats itself.

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

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

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

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

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

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certainly have events that
change things radically, the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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hear it pray this way. The
market always increases the

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

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

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appreciation on properties
always appreciates up 5%. That

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is a pure example of
representativeness, that what

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

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

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

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

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

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

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

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

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

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

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

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think it is. So the next
language model we should

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

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

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

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

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

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analysis not rely on past
results. Now past results can

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

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

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

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without thinking through them as
placeholders. All right,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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should just keep doing this,
because just like

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

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

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

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

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

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

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interpret information, not based
on the pure information itself,

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

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

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hired best marketing team in the
world.

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

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

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

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

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

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

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

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

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

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

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

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

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the frame, think like a neuro
linguistic programming

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

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

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

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

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

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

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

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

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

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syndications and knows
everything about the market and

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

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

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

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syndication attorney for the
Moschetti Syndication Law Group.

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

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

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

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

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

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

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behavioral finance absolutely
come up, how do I know because

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

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

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

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

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the damage caused by these
emotional and cognitive biases.

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

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

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again, my name is Tilden
Moschetti, Moschetti Syndication

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Law Group