I am aware of the behavioral investment biases, I know I’m experiencing irrational feelings, but still I’m getting the feeling. They don’t go away. I have even acted on them without knowing that I was subject to them.
Understanding your behavioral biases in investing can lead to lower risk and improving returns. There are many behavioral or cognitive biases that can influence the way you invest or the way you make decisions in general.
The concept of confirmation bias highlights the human tendency of seeking out information that confirms our current view. Always know the arguments for both sides and try to see all sides of a situation. You can practice this with your friends. When you’re having a discussion, take the opposing view.
Loss aversion states that people prefer avoiding losses over gettings gains. This goes hand in hand with the endowment effect, which states that people place a higher value on something they own versus something they don’t own.
This bias is more about the tendency for people to believe that they have more knowledge on a certain topic than they actually have.
Disposition effect bias is all about selling your investment. It states that investors tend to sell winning investments and hold on to losing investments.
Everyone knows the gains that are attached to a diversified portfolio. Despite that, investors prefer a familiar investment. Familiar investments are investments in their own company, region, country, products that they love, services that they use.