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The Top 7 Reasons Why Youre Losing All That Money
Today we feature a list of “The Top 7 Reasons Why Youre Losing All That Money“. The aim of behavioral finance is to better understand why people make the financial decisions they do. The field of study is becoming widely accepted. In fact, it’s such a crucial part of the Chartered Financial Analyst (CFA) curriculum, a course of study for Wall Street research analysts.
Don’t be intimidated. You might learn something about why you make the financial and investment decision you do.
You think you’re great at investing.
Overconfident investors are often underdiversified and thus more susceptible to volatility.
You think the past is an indicator of the future.
You don’t know how to handle new developments.
You don’t want to book a loss.
You remember your past mistakes.
Your risk tolerance changes with the direction of the market.
You always have good excuses to explain why you were wrong.
Sometimes your investments might go sour. Of course, it’s not your fault, right? Defense mechanismsin the form of excuses are related to overconfidence. Here are some common excuses:
- ‘if-only’: If only that one thing hadn’t happened, then I would’ve been right. Unfortunately, you can’t prove the counter-factual.
- ‘almost right’: But sometimes, being close isn’t good enough.
- ‘it hasn’t happened yet’: Unfortunately, “markets can remain irrational longer than you and I can remain solvent.”
- ‘single predictor’: Just because you were wrong about one thing doesn’t mean you’re going to be wrong about everything else, right?
- ‘dog ate my research’**
**This particular excuse isn’t identified in behavioral finance as far as we know. But we can imagine someone using it.