Did you know that there are certain behavioral traps that are aimed to lead people in incorrect directions? Their psychology is messed around with and they are manipulated easily. Ensure you aren’t one of the patsies!!
Both in general and specifically to finance, advertisements are misleading. They portray everything in an unrealistic manner. They fool consumers into believing sugarcoated lies and buy their mediocre products. Advertisements mislead investors too! Don’t go by what is advertised. Do your homework, research everything yourself and take decisions only after careful evaluation.
Deciding based on a particular point despite all red signs
When you invest in a particular stock and get great returns, you will not see the red signs the next time the results are bound to come. Financial markets are volatile. Today’s loss doesn’t guarantee tomorrows loss and today’s profit doesn’t guarantee tomorrows profit.
Overconfidence and Arrogance
“Huh! I know everything!” This is so incorrect. Our wise men of yore have advised against being arrogant and overconfident. You need confidence, not overconfidence. Narcissism leads to your collapse. Wisdom lies in listening to advises instead of declaring that you are the Know-it-all!
Follow the herd/Herd mentality
Mob mentality is so prevalent in our society. This trait is a trait that shouldn’t be followed instead. Back in the days of yore, it was survival instinct to follow the herd. Today we don’t need herd mentality; especially in finance. Herd mentality works in the animal kingdom where it’s safe to be large numbers. Don’t follow the herd. Do your own analysis and figure what’s best for you.
Fear of Missing Out is a phenomenon in modern times. It means the victim is afraid of missing out on something better, new, exciting and advantageous. It’s a deep-seated fear combined with jealousy that others are leading lives that are much better than yours. Unfortunately, FOMO is prevalent even here! We see Mr. X investing in stock A and get returns which are better than ours. What we do next is invest in stock A without any guarantee that we will get better returns.
Confirmation bias is when you place larger value into info that reinforces your already existing beliefs and downplay opposite opinions. Admit that we’ve all been guilty of this.
This trend is more evident in the film industry and politics where one person is worshipped blindly. This is blind worship! Unfortunately, this exists in financial spheres also where people prefer one company over the other blindly.
Avoid fooling yourself. Think before investing your hard-earned money.