Good morning, I took a rest yesterday, that’s why there was no article. It will happen that I take these little rests between the weeks, but I’m still focused on bringing articles every week. So let’s get into it!
This comes from a Substack account called Investors’ Wisdom.
10 Cognitive Biases Every Investor Should Avoid
1. Confirmation Bias
The Trap: Seeking out information that only supports your existing beliefs about a specific stock or asset.
The Lesson: Always actively study the bear case (the opposing view) to ensure a balanced perspective.
2. Overconfidence Bias
The Trap: Believing your investing skills are significantly better than they actually are.
The Lesson: Remember that markets punish ego; overconfidence often leads to excessive trading and unnecessary risk.
3. Survivorship Bias
The Trap: Focusing only on "winners" or successful investments while ignoring the many that failed.
The Lesson: To get a complete view of the market, study both winners and losers.
4. Endowment Effect
The Trap: Attaching more value to an asset simply because you already own it.
The Lesson: Periodically reassess each investment objectively—ask yourself if you would buy it today if you didn’t already own it.
5. Herd Mentality
The Trap: Following the crowd to fit in rather than performing independent research.
The Lesson: Think independently. In the market, popularity does not equal profitability.
6. Recency Bias
The Trap: Overweighting recent events and market swings while ignoring long-term historical data.
The Lesson: Keep your eyes on long-term trends, not just the latest news cycle.
7. Loss Aversion
The Trap: Feeling the pain of a loss more intensely than the joy of a gain, leading you to hold "losers" too long in hopes of breaking even.
The Lesson: Don’t hold a bad investment just to avoid realizing a loss.
8. Anchoring Bias
The Trap: Relying too heavily on the first piece of information you received, such as the original price you paid for a stock.
The Lesson: Base your decisions on current value, not past prices.
9. Availability Bias
The Trap: Making decisions based on the most "available" information—usually vivid headlines or recent news—rather than comprehensive data.
The Lesson: Look at the whole picture, not just the sensationalist headlines.
10. Sunk Cost Fallacy
The Trap: Continuing to pour money or time into a poor investment just because you’ve already spent a lot on it.
The Lesson: Don’t be afraid to cut your losses and move on to better opportunities.10 Cognitive Biases Every Investor Should Avoid
