Humans are hard-wired to be emotional, but it’s the one thing we really can’t be when investing in the sharemarket. It makes success almost impossible. I'm joined by Michael Dee from Pythagoras Investing who explains some of the biases we need to be aware of that can affect our investing decisions.
Listener Deryl from Wollongong asked for some discussion about psychology in share investment and Michael has helped out to highlight the emotions and biases that can affect us.
12 Biases to be aware of when taming your investing emotions
The best investors say – “I hear your positive view. Go and find me the most negative you can find.”
The need to dig into every piece of data we can find and end up confusing ourselves.
Regret or loss aversion
We prefer as humans to avoid a loss than to make a gain. The foolish behaviour of “past price anchoring”.
We see the good from past events as predictable and the bad as unpredictable so it stops us from learning from your mistakes
Gaining comfort because everyone else believes the same thing. Cash is your most valuable commodity, to be used cautiously and judiciously. If you can hold yourself when the herd is running and wait till bargains appear that is your greatest asset.
Reinvesting in the same stocks over and over again reducing diversification
Humans want simple explanations and nothing’s simple
This is normal, but it alters our judgement negatively
A preference for the well-known investments “the zone of sensible excitement”
Neglect of probability
There’s no-one you can trust – you must be the judge of company earnings
Where the money flows, so too does the greed.
After a certain number of drinks ignore anything anybody tells you
Michael has generously tailored an offering for listeners to this podcast that can be accessed here. This is not an affiliate program and I'm not making any commission from referring listeners to Michael's web-site. It's up to you to decide whether Pythagoras Investing is for you. This is not a recommendation from me and as always do your own due diligence.
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