Login | April 07, 2026
Irrational Finance
Motley Fool
Published: April 7, 2026
Q. What's behavioral economics? -- A.M., Brooklyn, New York
A. It's an academic field combining psychology and economics in order to explain how people make financial decisions -- often not in rational ways.
For example, many people would drive a distance to save $10 on a $20 purchase but wouldn't do so to save $10 on a $1,000 purchase -- though the amount saved would be the same. Meanwhile, you may skip buying a $100 jacket, but if you see that its initial price was $160, you might reconsider, viewing the price differently.
We can be similarly irrational when it comes to investing, too. Many people put off or avoid participating in their workplace 401(k) plan even though they know they should. They may stubbornly remain invested in a stock in which they have lost faith, hoping to make back their loss -- when it would be more rational to just sell and move the money into a more promising investment.
It's a fascinating topic, and you can learn much more about it in books such as "The Armchair Economist: Economics & Everyday Life" by Steven E. Landsburg (Free Press, $20), "The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life" by Uri Gneezy and John A. List (PublicAffairs, $27), "Nudge: The Final Edition" by Richard H. Thaler and Cass R. Sunstein (Penguin Books, $20) and "The Little Book of Behavioral Investing: How Not To Be Your Own Worst Enemy" by James Montier (Wiley, $25). The "Freakonomics" podcast and book series are also enlightening.
Q. What's a capital gain? -- P.L., Grand Rapids, Michigan
A. If you own an asset and sell it, the difference in value from your purchase price is your capital gain -- or capital loss.
Fool's School
Investment Accounts for Your Kids
It's smart to get your kids interested in investing, because they have a huge edge: Their money has the most time to grow.
For example, imagine a 15-year-old and a 35-year-old who each make a single $1,000 investment that grows at 8% annually. If they both retire at age 65, the 35-year-old will see that $1,000 become more than $10,000 over 30 years -- while the 15-year-old's $1,000 will grow to almost $47,000 over 50 years.
You might start by discussing money and investing with them in an age-appropriate way. Show them how you manage the household's finances and pay bills. Explain the household budget if you have one. Tell them about financial challenges you've faced, such as paying down debt or saving for a mortgage, and what your financial goals are today.
Discuss your investment successes and disappointments, too. Talk about companies in which you're invested and companies in which they may want to invest, and follow them and their developments in the news. Companies that might interest kids include Microsoft, home to the Xbox and video games, among other things, and McDonald's and Starbucks, where lots of young people like to eat and drink. Many other companies may be of interest, too.
Our book, "The Motley Fool Investment Guide for Teens: 8 Steps To Having More Money Than Your Parents Ever Dreamed Of" by David and Tom Gardner with Selena Maranjian (Touchstone, $20), is also a good introduction to investing.
They might invest through you and your brokerage account. Or, if they have earned income, they can save for retirement with an IRA account. (A Roth IRA is particularly good, as they'll owe little or no tax on the earnings they invest, and withdrawals will be tax-free.) With Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts, you can give them money to invest while you serve as custodian. A Fidelity Youth Account for teens is another option. Do some online research into investment accounts for kids to see what will serve you best.
My Dumbest Investment
Sold Tesla Too Soon
My most regrettable investment? Well, I owned shares in Tesla very early on. I think it was $15 per share at the time. Then I read an article in a reputable financial magazine, and the author said Tesla would be a good company with a good product, but they would never be able to sell enough cars. After reading the article, I sold Tesla and made some money. But I did not own the shares while the stock rose and rose and rose. I should not have listened to the so-called expert in the magazine. -- B.P., via email
The Fool responds: Even the most expert experts will make bad calls now and then. It's best not to just do what they say, but instead to think about what they say and decide whether you want to act on it.
It's true that Tesla has been a standout stock over the past few years. But that may or may not continue: Sales have been shrinking, in part due to the underperforming Cybertruck, safety concerns and Elon Musk's political maneuverings. Tesla's shares fell about 10% in the first two months of this year; they also seem overvalued, with a recent price-to-earnings (P/E) ratio of 370 and a recent market value for the company of $1.5 trillion.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Foolish Trivia
Name That Company
I trace my roots back to 1802, when a French immigrant set up a gunpowder factory on the banks of the Brandywine River near Wilmington, Delaware. I became the largest supplier of gunpowder to the U.S. military, supporting the Union army during the Civil War. I later began making dynamite. I introduced the synthetic fiber Lycra (spandex), in 1958, and debuted Tyvek in 1967. I developed bullet-resistant Kevlar in 1965. Today, with a recent market value close to $19 billion, I'm a major global chemical company, primarily serving the health care, water, construction and industrial markets. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1903, when several fellows in Milwaukee, Wisconsin, built a motorcycle and founded me. They soon built some factories (helped by a $170 loan from an uncle) and began selling to the public. I was the first motorcycle brand to sponsor a racing team. I supplied more than 20,000 motorcycles to the U.S. military in World War I. My market value was recently near $2.3 billion, and my models have borne names such as Panhead, Softail, Fat Boy, Road King and Low Rider. My ticker symbol is what you might call a pig. Who am I? (Answer: Harley-Davidson)
The Motley Fool Take
Built To Last -- and Profit
The company that Warren Buffett helmed for 60 years, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), remains a solid investment even though he has stepped down from the CEO role. (He is staying involved with the company, though, as chairman.)
Berkshire stock is as diversified as some index funds, invested in a wide range of companies spanning multiple sectors. Berkshire has over 60 subsidiaries. Its insurance and energy businesses get the most attention, but it also owns jewelers, manufacturers, a railroad, restaurant chains, retailers and more.
The company's portfolio includes more than 40 stocks of other publicly traded companies. Berkshire recently owned 22% of American Express, 10% of Domino's Pizza, 9% of Coca-Cola, 7% of Bank of America and 1.5% of Apple (with that stake alone worth nearly $62 billion).
Berkshire Hathaway is in capable hands with Greg Abel as CEO. The transition introduces some uncertainty, but Abel is expected to maintain the same focus on value-oriented investments. Meanwhile, Berkshire sits on more than $370 billion in cash -- dry powder that could fuel a major acquisition or even a first-ever dividend. Berkshire's strong culture of savvy capital allocation, patience and discipline should lead to solid investments that will add to the company's already powerful earnings engine. (The Motley Fool owns shares of and has recommended Berkshire Hathaway.)
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