🐺You Cannot Let Your Mind Become Your Enemy

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An investor’s worst enemy is his own mind.

Here are 5 psychological fallacies to watch out for when making investment decisions:

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1/ Sunk Cost Fallacy

This is when people are reluctant to abandon something they’ve invested in.

Usually, if they invested time, money, energy, or other resources.

If a particular investment isn’t worth it, sell your position and move on.

Don’t let emotions ruin your portfolio.

2/ Hot Hand Fallacy

This is a mistaken belief that several positive outcomes in a row have a greater chance of further success.

Such as a stock rising for long periods – we assume it’ll keep going up.

This leads to overconfidence and too much stake in one investment.

3/ Gambler’s Fallacy

Gambler’s fallacy is when people believe past random events affect the likelihood of future random events.

Such as expecting a stock to rise simply because it previously fell.

If you invest according to this fallacy, you’re (by definition) a gambler. – not an investor.

4/ Confirmation Fallacy

We’ve all been victims of this one.

Seeking out information that confirms our beliefs and ignoring contradictory evidence.

Always play devil’s advocate as an investor – it’ll save you from making the wrong decision.

5/ Bandwagon Fallacy

This one should be evident.

Just because everyone is investing in a particular stock, doesn’t make it a good investment.

Yes – a stock's popularity is evidence of a great investment.

But you can’t base your decisions purely on this fact.

When we think of threats to our investment portfolio, we think of factors beyond our control.

Government regulation, banking decisions, black swan events, etc.

In reality, it’s the space between our ears that deceives us the most.

Try to view every investment as objectively as possible.

It’ll pay dividends in the long run.

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