Question

What are human traits that tend to affect investment decisions?

Answer 1

Several human traits that are affecting investment decisions are as follows-

A. Overconfidence-an investor is always overconfident on his own analysis and he believes that his analysis is perfect in nature and he will be easily outperforming the market and his stock selection is also perfect.

B. Herding effect-this effect is about following the crowds and investors are always changing what other investors are doing and they are following their analysis rather than following their own analysis so this will lead to herding behaviour.

C. Panic selling-this extreme behaviour on the way down side reflects that when the market is completely bearish and investors are selling the stocks, they will not think twice about the price at which they are selling, they will just be selling all of their holdings because they would be panicked to hold them for a longer period as they believe that their capital would be wiped out

D. Recency bias-investor often thinks that those stocks which have outperformed in the past will continue to outperform in the future, so they would be more inclined towards investment into such stocks who are have performed better in their past.

E. Patience-patience is another human trait that is reflected in the the behaviour of those investors were successful in the long run by investing through the fluctuating markets and they have been able to generate higher rate of return.

So, these are the human characteristics and traits that tend to affect investment decisions.