MORNÉ BEZUIDENHOUT: How to limit the effects of biases on your investment
Emotional discipline, rigorous logic and objective standards can be available in great supply — except when it comes to your own money
“The investor’s chief problem — and even his worst enemy — is likely to be himself.” — Benjamin Graham, The Intelligent Investor. Very few of us are fortunate enough to have an objective, rational grip on all aspects of our own reality. Nothing illustrates this better than our behaviour when it comes to investing for ourselves. The emotional discipline, rigorous logic and objective standards needed by any investor can be available in great supply — except when it comes to investing our own money! Behavioural finance experts have identified more than 50 biases that may affect investor decision behaviour. Let’s examine a few of the more common biases encountered. Loss aversion bias is due to an investor’s intense fear of losing money. Investors attach more significance to a loss than an equivalent gain. Some studies suggest investors feel the pain of a loss twice as deeply as the satisfaction of a gain. Such investors typically hold on to losing investments too long and sell profitabl...
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