Financial behavior: 7 tend to think that you lose money

Why investors do not make more informed decisions? According Meirr Statman, one of the leading experts on school finance act, "investors - they not only normal but the only reason."

The purpose of the school finance act is to better understand the reason that we make their own financial decisions. Scope of this research is gradually being accepted. Actually that's part of the program Chartered Financial Analyst (CFA), a course for researchers on Wall Street.

Here are the trends outlined in the CFA program provide us with the investment decision and financial performance:

1. You are a good investment

Overconfidence (overconfidence) is probably the clearest concept of the school finance act. That is when we place too much confidence in the ability to predict the results of their investment decisions.

The over-confident investors often overlook the concept of diversification, and thus lead to higher risks.

2. Think that the past is a guide to future

The company announced a quarterly profit chain. And the results, we assumed was the next announcement will be profitable as well. This error falls into a broad concept of behavioral finance school - deviations from the typical situation (representativeness): when there are typically short-term situation, we think this situation becomes normal, instead of more attention to long-term factors.

Another example for deviations due to errors typical situation is that a good company means that stocks are fine.

3. Difficult to control events

Mounting identified (anchoring) is also related to the concept of over-confident. For example, an initial investment decision we make is based on the information at the time. Then we get new information affecting their initial estimates. But instead of creating new analysis, we revised the analysis of his old.

Because you and I have been "associated" with the former analysis, the revised analysis will not fully reflect new information.

4. Do not accept the losses

Fear of losses (loss aversion) - with the loss aversion or reluctance to accept it is dead wrong. For example, one of our investments are down 20% for some reason something. The best decision is to cut losses and move on. But we can not stop thinking about the stock could rise.

Thinking is dangerous because it usually take to ever greater losses in your account. This behavior as well as a gambler betting big on deck series in hopes of breakeven.

5. Not to forget the mistakes of the past

The transactions in the future you often affected by the results of transactions in the past. For example, you sell stocks to increase by 20% then it continues to look after the sell order prices. And you tell yourself "wait for the price." Or if one of your lost investment cost, you will always regret not selling when the price was. These things cause discomfort or regret.

Minimize regret (regret minimization) - occurs when you avoid all capital investment or invest only cautiously because you do not want to feel more regret.

6. Risk tolerance of market change

Risk tolerance should be determined by your financial situation, investment duration and scale of investments in your portfolio. Frame dependencies (frame dependence) is a concept referring to the changing trends of risk tolerance based on market fluctuations. For example, when the market goes down, whether you are ready to take risks also decreases, in other words, you are willing to take more risks when the market goes up.

This is often the cause of the investors buy high and sell low.

7. There are always good reasons to explain the mistake

 Sometimes, your investment is not favorable. Of course, that's not your fault! Self-protection mechanism (defense chế) within excuse is also related to the concept of Overconfidence. Here are some common excuses:

"What if": If that thing does not happen, I was right. Unfortunately you can not go against the truth.

"Almost right": But sometimes, just almost not enough control.

"It has not happened":Unfortunately, the market can remain irrational situation in a longer endurance of us.

"Only one prediction": The one thing you guess wrong does not mean that you guessed wrong all else, right?