What makes an irrational investor?
Sometimes our minds can play tricks on us – causing us to act on assumptions or ideas that aren’t quite true.
These unhelpful behaviours can hurt your investing style - below we explore five of the most common, to help you become a more rational, and hopefully more successful, investor.
1. Losing: a feeling we can't stomach
Nobody likes losing – even if it’s only a little. The problem is, we might hate it so much that we don’t give ourselves a chance to win big. What does that mean for our returns?
2. Anchoring: past prices warp our investing decisions
Ever wondered why picking something up in the sale feels so good? An earlier price (or performance) affects how you judge its value in the future.
3. Personal beliefs: they skew our judgement
Often, we’ll grab onto facts that confirm our view of the world - and pay less attention to those that don’t. This doesn’t always make for the best investing decisions.
4. FOMO: it herds us into mistakes
The fear of missing out can lead us to some fairly impulsive decisions. When it comes to investing, maybe it’s FOMO itself that we should be afraid of?
5. Overconfidence: it encourages us to take too much risk
When we’re on a roll, it might feel like the good times will never end. But overestimating our abilities and control could do some real damage to your portfolio.