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10 blind spot in investments in securities

stocktrading


Understand and be aware of the blind spot (blind spots) will help us avoid mistakes and achieve financial goals.



Investment success is a very difficult thing, but it does not require investors to be a genius in the analysis, stock options, or deep understanding of the macro that it relates more to the simple things , but little attention. It's "The ability to identify and overcome the mentality of investors."
Legendary investor Warren Buffett had a famous saying about the behavior of investors: "Investing Success in IQ does not correlate with. Once you have ordinary intelligence, what you need is the temperament to control the urges mà get in trouble Investing Into Other People "(roughly translated as" Success in investing does not correlate to IQ, all you need is control in order not to fall into trouble when the investor ").
In fact, there are many types of investment such as stocks, options, short-selling (in Vietnam not allow this type of investment), or according to a fixed income, but the ability to identify and control when investment psychology will help her succeed.
Understand and be aware of the blind spot (blind spots) will help us avoid mistakes and achieve financial goals. Here are 10 things of behavioral finance (bahavioral finance) Frequent investors and should be avoided when investing.
1. overconfidence : This reflected the belief that we are more intelligent or capable than the fact that we have. For example: there are 82% who said they were under 30% of those who drive their safest or 90% sure that they know that despite the fact they only know about less than 70%.
In investing, overconfidence leads investors to be confident that they have found Apple or Priceline Inc . (Apple and Priceline Inc . has gained 5.3 and 14 times in the last 5 years) played two . But in reality, they can not. In addition, they are confident that they are smarter than other investors in the reverse position and they do not take into account the transaction costs, such as transaction fees, taxes, differences in trading ( Bid Spread -ask) While conducting an investment.
Overconfidence caused by having to make decisions quickly when surrounded by so much information in the stock market and based on previous successes.
To overcome this, we must always recognize that what we know it than what we think we know (We all know less than we think WE DO) and always willing to learn, discuss and analyze past mistakes.
More importantly, for the over-confident not affect investment, we have to build a diversified portfolio and not bet too on any one idea or investments in portfolio investment. Sometimes we win over the wrong reasons, but ultimately this will be recorded in the mind and will affect investment in next time.
So to succeed in investing, not better information but rather to look for value from existing information wisely and more rational.
2. Selective Memory : People often dodge the memory of the mistakes or failures experienced in the past, although we ourselves have caused. In investing, investors generally do not want to miss these stocks has caused memory loss but only selectively invest about victory for "free" satisfy and protect our own image.
We often reassure ourselves with the question said to himself as "Maybe it was a bad decision to sell shares at a loss when it", or "Maybe we will not lose as much money as they I think? ". And gradually our memory will not be correct about the events that investing mistakes.
The cause of the "Selective Memory" is possible by the mind too focused on the current evidence that goes forgotten past evidence leads to wrong investment decisions.
To avoid mistakes from "Selective Memory" and "overconfidence", investors should note the investment result (win or lose), because they can easily remember 1 share profit of 50% immediately, but the recognize all these investments will help us realize the majority of our investments are in good standing in a period.
3. Self-Handicapping: Contrary to overconfidence. Self-Handicapping happens when we try to explain the future bleak for these reasons may be true or not true. For example, we feel not good to start the presentation, the presentation that certainly would not be good.
When investing, we also can not stand his self hampered, as regards himself does not have much time to study and in the case of investments not as willing to blame themselves.
Self - Handicapping & Overconfindence are affecting the success of the investment.
4. Loss aversion (Obsessive losses): Many investors feel obsessed when an unprofitable investments despite the rest of the portfolio is secure. And they are willing to sell a stock with a small profit, but certain not to sell a stock is falling miserably with a reason that it will come back, but the fact that never happened.
Another example is that we would rather not lose $ 5 rather than accidentally discovered $ 5. Loss aversion made ​​investors afraid to invest because of fear of loss.
To avoid feeling loss aversion, investors should diversify portfolios, open your heart and learn the knowledge to always find opportunities ahead.
5. anchoring : For example, when we asked a resident of the City of Hanoi's population, they tend to use the City's population numbers and adjust them down and apply to the population of Ha Cabinet, but such is not true. When forecasting an unknown thing, we tend to stick with what we know.
In investing, as a share discount, investors tend to "stick" with the price that they have purchased such shares and other factors such as high income stocks, well before its market share declined and they decided not to sell when the world changed, and expect it to return to breakeven original price. But in reality it does not happen.
Eg DELL been a dominant company in the computer industry two decades, but that advantage no longer and outdated, then why should we hold in portfolio DELL?
Investors should ask yourself: "This investment has not profitable?". If not, why should I keep it? Answer honestly, will help investors have a reasonable decision.
6. Sunk Costs : For example, we give $ 100 to buy a ticket to a play and this play feel horrible and because we run out to buy that ticket, so we tend to attended the play to the end; but if there are tickets for the play by a friend, we easily decide the draft or not to attend, knowing that a bad play.
In investing, as we spend more time and effort to research and find one stock that is not good investments, but on instinct we like it because we spent a lot of time for it and tend to choose it.
7. Confirmation Bias : For example, we owned one Honda, one tends to believe the information support of past experience when we buy it rather than inform Opposition news.
In investment, the purchase of an investment fund specializing in the healthcare sector stocks, we tend to like or exaggerated about the health sector and ignore / lessen the negative news about the industry that we hear.
To avoid this failure, we should seek information both two sides, this will be tied to any one idea, more independent decisions and prevent the situation "falling in love with a stock". Further, we will have the opportunity to find why our investments are false and have the opportunity to correct earlier.
8. Mental Accounting: For example, we play cards and roulette at $ 100 to win $ 200 surprise. We tend to think that the risk will play with $ 200, so $ 200 is not our money and not hard earned and will easily agree with the assessment of risk with it.
Another example: If we in District 1 and intend to buy one television set for $ 500 in District 1 but in District 3 just sold for $ 400, then we tend to move into District 3 to buy for savings $ 100. But if you buy a motorcycle for $ 5,000 in District 1 and $ 4,900 in District 3, we always tend to buy in District 1 (although will lose $ 100 than in District 3).
To avoid this, investors should calculate Total return on investment (ROI) of their investments.
9. Herding : There are thousands of stocks and we can not be aware of them all. And we regularly besieged by the idea of brokerage, television, magazines, websites investment, friends ... And certainly the idea sounded attractive than stocks that they I'm holding. In fact, a stock when unnoticed by the masses due to the appreciation of it and not because of the intrinsic improvement of the business.
In fact, investors often trade too much based on the wrong reasons, listen to newspapers, news, friends. And we can avoid mistakes when we select stocks more carefully, and stay away from crowds or rumor to avoid these investments do not follow their own investment objectives.
10. Recency Bias: Is the presumption is that the trends or patterns in the recent past will repeat or continue in the future. Therefore, future actions will be based on the perceptions of the past.
For example, the housing market is in bad condition and towel investors always claim that it will continue forever so. But we all know, the economic cycle will take place and back.
Fortunately for those holding shares of Home Depot, Lowe's or Paychex (Home Depot rose 4 times when the US economy recovers in the last 5 years. 
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