BIASES

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Biases

We assume certain things before we act on anything. These assumptions can be at many times be irrational, based on our past experience and our patterns of thinking. It can be due to influence of others. And these biases if they are not filtered correctly , will affect our investment process and the returns we get out of the investments.

Some of the biases , one need to be mindful while investing are,

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Loss Aversion Bias

This is the tendency to hold on to loss making investments, mainly out of aversion to convert papdr losses to real losses. This despite the fact that moneyb got by selling this can be used to buy better investments.

Confirmation Bias

This is when one chooses an investment and then selectively looks for reports and opinions supporting his conclusion. He doesnt care to look for opposing theories and reports

Herd Menatality

People are very comfortable when they invest in products which a majority of people do. It gives lot of comfort, even if they make losses. the comfort coming from the fact that the majority also lost. Whereas the good thing is to choose the road less travelled. And be different from others.

Recency Bias

We tend to rmember the most recent events in the short term am=nd exrrapolate them into the long future.

A severe market crash, would make investors feel the markets are on continuous fall and accordingly they will either pull out investments or postpone them, Whereas, generally the markets rebound, and they loose chances of having invrsted cheaper, are the chances of selling at higher levels.