In its simplest form, extrapolation bias is the tendency of an investor to overestimate recent events when making decisions about the future. In short, to forecast overly optimistically in rising markets, the reverse when they have fallen. This bias, as with so many related to personal investing, does not serve investors well.

We live in an era of wide choice: from selecting delicacies to selecting securities for investment. It is an assumption of our age that abundant choice is one benefit of an enlightened age. Proof exists that choice overload can lead to selection paralysis and the search for a solution.

Behavioural finance expert Richard Thaler identified and named the practice of mental accounting. He and others in the field have written extensively on how people deceive themselves with this practice. A chat with your account manager at Palmers may pay substantial dividends in remedying the mental accounting tic.