January 19


Seven dumbest investment mistakes

By Scott Woolley 

Emotions can be expensive, especially when you start making  investing decisions with your gut instead of your brain. Fortunately,  there are ways to avoid–or at least limit–the mistakes that we oh-  so-human investors tend to make.

Daniel Kahneman won the Nobel prize in economics seven years  ago for his work on how irrational humans systematically make  mistakes. Since then, research in the field of behavioural finance has  exploded.

Given the recent market turmoil what common, and costly, mistakes  should investors be especially vigilant to avoid making today?

One is a direct result of the stock market plunge. People who bailed  out of stocks after losing as much as half of their investments are  now anxiously sitting out the market recovery, says Amy Barrett, a fee-only financial adviser and director of investments at Savant Capital.

Those people have “anchored” themselves to the value of the stock market at its trough, where they bailed out. They’re having a hard time accepting the fact that stocks might really be good values at their new, higher levels. In the past that behaviour has been a sure recipe for missing a market rebound, says Barrett.

“I’d like to shake these people and tell them to get out of their rut,” she says.

Emotional Investors’ Seven Dumbest Mistakes

Here are descriptions of the most common cognitive errors investors make–and some tips for getting your rational mind to override your potentially costly emotions.

source: Sify Finance


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