Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Do biases make you a bad investor?
Thu, 19 Jun Pre-Open

Most people believe that investing success depends only on the skills of the trade. Value investors believe in buying stocks trading at a discount to their intrinsic value. Growth investors on the other hand, believe in buying stocks in anticipation of future earnings growth. And so on. However, only a few investors give enough attention to their own thoughts when it comes to investing. This can lead to big investing mistakes.

There are many examples of intelligent people getting carried away with their investments. Our thoughts are more important for investing success than our strategy and we should pay more attention to it. Like it or not, the human brain has evolved for survival. In the world of investing, this evolutionary trait might do us more harm than good. We are prone to biases that help our brain take shortcuts in our decision making. These short cuts, called heuristics, are the root cause of most of our investing mistakes. For example, we can believe that luck has played no role at all in a particular stock investment. In reality, luck does play a part especially in the short term. Our biases can cause us to hold on to a losing investment because we refuse to believe that we could be wrong. We can sometimes, be so caught up in our strategy that we forget to pay attention to facts as well as our own reasoning.

A recent survey has proved that these biases are prevalent among young and old investors alike. The level of success and experience of the investor also did not matter. Rich people who are more interested in just preserving their wealth were also found to be prone to making emotional judgments. Young investors were found to give themselves too much credit for successful stock calls during bull markets. The moral of the survey is clear. We all have our biases. Thus it is important to remain humble, as often as it is humanly possible. Humility helps to put our investing success in proper perspective. We can find no greater example of this than Warren Buffett himself. A proper understanding of our investing biases combined with humility will go a long way to make us better investors.

Does your investment framework protect you from emotional biases? Share your views on the Equitymaster Club.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Do biases make you a bad investor?". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Agora Research Private Limited.

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Agora Research Private Limited (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.