In the Investor Mind: 9 Classic Mistakes
We do not discover anything when we claim that our psychological traits directly affect the decisions we make throughout the day and that, while we may decide from an entirely rational perspective. More often than not we believe we are betraying by our subconscious.
Taking this approach as the basis, researchers at Montreal Financial have wondered about the “unconscious” traits that may hurt our business model or our portfolio as a small/large investor.
Although they may seem very rational, investors, like most humans, tend to make value judgments based on stereotypes. This can lead them to be overly optimistic when a project seems “winning”. And the too pessimist when they think they are talking to a “loser.”
The use of stereotypes is much more widespread than we can think since they have an apparent and study psychological function. To help us make decisions when we are present with an excess of information. This, however, can lead us to make wrong business decisions.
Overconfidence (for example, thinking that we are smarter than others) can play against our customers and our business.
Above all, it is not a few times that this excess of trust turns into arrogance, which can lead us to overlook excellent business opportunities (because we think they are not good enough for us) or, in specific cases, Directly affect our interests.
Pathological optimists are those who are convinced that everything will go well regardless of the circumstances surrounding the market and its project. To think for example that our company will continue to grow even though it is not giving benefits or a positive cash flow can be dangerous if the appropriate measures are not taken.
It is perhaps this excess of optimism that caused the great outbreak of the dot-com bubble in 2001 although investors now think twice before betting on a new start-up. It is also true that in issues such as social networks or marketing Online we are living a new hype.
Anchored in first impressions
This feature refers to investors who often rely too much on first impressions so that they are not able to react appropriately when they receive new information.
In this sense, it is not too difficult to imagine the great first impression that Bernard Madoff should have had on the first investors who thought they were dealing with an insurmountable business. And we are also sure that someone has happened to you that the employee who in the first interview transmitted to us A flawless first impression, turned out to be the worst worker of the year.
Aversion to diversification
We do not reveal any secrets when we say that investors usually bet, by projects and companies that already know or with which they do business.
Although in theory there is nothing wrong with it, it can lead us to make some beginner mistakes. One of the most frequent is to bet a good part of our investment by the company for which we work since we are psychologically convince that it can only go well on the Stock Exchange.
Sometimes we do not even consider that a bad quote from our company usually indicates that perhaps things do not go too well within the organization and in the worst of scenarios. We can lose our work and our money at the same time.
Terror to lose
It is showing that the feeling of loss, frustration, and pain we feel when we lose something that is ours is superior in intensity to the opposite opinion, that of success or triumph.
This can lead to a situation that we could call terror to lose. So we do everything possible to avoid experiencing that feeling again.
Naturally, this brings us to make wrong decisions. We may not get rid of a bad investment even when everything tells us that it is better to do it. Or we do not sell a product because we think that sooner or later it will recover. And yet, sometimes drastic measures have to be taking.
Excess of stiffness
Sometimes people want to have everything so controlled that we impose limits that go beyond all reasonable logic. For example, we decided that we will stop investing in all companies that present losses above 5% or at the corporate level we decided not to hire a person because the response that has given to one of the 200 questions that we have raised just convinced us.
In both cases, our decision would require more scope and flexibility to determine when we can skip our own standards.
The terror to lose, combined with the fear of being responsible for making the wrong decisions can lead us to regret too much and cause as a consequence an irrational behavior.
It can lead us, for example, to invest in a random way to exempt ourselves from any responsibility. Or even to not start our business project because we do not want to be responsible for their possible failure.
It is perhaps the most dangerous trait we have seen so far. It refers to the quality some people have of claiming all honors when making wise decisions but blaming others when decisions taken prove to be wrong.
Individuals who think that if their investment portfolio goes high. Is because they are great investors who know all the secrets of the Stock market. But if it goes wrong is because its agent has no idea and has made him lose a lot of money.
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