Making the wrong investment decisions as a result of bias often proves costly. Learn to recognise these biases
Behavioural economics suggests that to master the art of investing, you need to first understand your psychology. After all, our psychological instincts dictate so much of our behaviour, including our investment decisions. In spite of our better judgment, we are all predisposed to think and act in certain ways. While as an investor you might know a good deal about how to pick the right stocks, your subconscious habits could pull you back from mastering the art. This is because our behavioural biases often drive us to behave irrationally, and prevent us from making the right moves. Making the wrong decisions as a result of bias we are not aware of often proves costly, causing us to lose money in the markets. What's worse, this bias affects all types of investors, right from traders to those who think they are long-term investors with a high-risk appetite.
So what are these behavioural constraints, and how exactly do they impact your investments? Is there a way to overcome them?