Question

In: Finance

What type of behavioral investing might impact your stocks.

What type of behavioral investing might impact your stocks.

Solutions

Expert Solution

The following are some of the behavioural investments that can have an impact on stocks:

a) Anchoring- We stay rooted to our own beliefs regarding something so we would not want to receive any contradictory information which makes us biased.

b) Regretting aversion- It is the feeling of regret if one incurs a loss, we do not want to end up feeling like that so we become extremely risk averseand do not want to sell investments not performing well.

c) Disposition- We tend to hang on to a stocvk which has no more upside or end up selling a good investment too early so as to avoid any losses.

d) Hindsight- We think that a past event was easily predictable when in reality no one would have been able to predict it actually.

e) Familiarity- We have too much attachments towards certain investments and we do not wish to diversify our portfolio. Because of not being well acquainted with other stocks, this kind of biasness can make a portolio sub- optimal.

f) Self-attribution- We believe that the only reason a stock performed well was because of us but if it performs badly then some external factor only is to blame for it. This may make us feel overconfident.

g) Trend chasing- We end up chasing historical trends completely oblivious of the fact that such trends may not exhibit future performance.

h) Worry- It is a natural thing to worry about something, but with increase in anxiety level risk tolerance decreases which means we are carried away too much by our personal judgements.


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