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The Top 7 Reasons Why Youre Losing All That Money

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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.

Overconfidence may be the most obvious behavioral finance concept. This is when you place too much confidence in your ability to predict the outcomes of your investment decisions.

Overconfident investors are often underdiversified and thus more susceptible to volatility.

 

You think the past is an indicator of the future.

A company might announce a string of great quarterly earnings. As a result, you assume the next earnings announcement will probably be great too. This error falls under a broad behavioral finance concept called representativeness: you incorrectly think one thing means something else. Another example of representativeness is assuming a good company is a good stock.

You don’t know how to handle new developments.

 
Anchoring is related to overconfidence. For example, you make your initial investment decision based on the information available to you at the time. Later, you get news that materially affects any forecasts you initially made. But rather than conduct new analysis, you just revise your old analysis.
 
Because you are anchored, your revised analysis won’t fully reflect the new information.

 

You don’t want to book a loss.

Loss aversion, or the reluctance to accept a loss, can be deadly. For example, one of your investments may be down 20% for good reason. The best decision may be to just book the loss and move on. However, you can’t help but think that the stock might comeback.
 
This latter thinking is dangerous because it often results in you increasing your position in the money losing investment. This behavior is similar to the gambler who makes a series of larger bets in hopes of breaking even.

 

You remember your past mistakes.

How you trade in the future is often affected by the outcomes of your previous trades. For example, you may have sold a stock at a 20% gain, only to watch the stock continue to rise after your sale. And you think to yourself, “If only I had waited.” Or perhaps one of your investments fall in value, and you dwell on the time when you could’ve sold it while in the money. These all lead to unpleasant feelings of regret. Regret minimizationoccurs when you avoid investing altogether or invests conservatively because you don’t want to feel that regret.

Your risk tolerance changes with the direction of the market.

Your ability to tolerate risk should be determined by your personal financial circumstances, your investment time horizon, and the size of an investment in the context of your portfolio. Frame dependenceis a concept that refers to the tendency to change risk tolerance based on the direction of the market. For example, your willingness to tolerate risk may fall when markets are falling. Alternatively, your risk tolerance may rise when markets are rising.This often causes the investor to buy high and sell low.

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.

I am the the Founder of Addicted2Success.com and I am so grateful you're here to be part of this awesome community. I love connecting with people who have a passion for Entrepreneurship, Self Development & Achieving Success. I started this website with the intention of educating and inspiring likeminded people to always strive for success no matter what their circumstances. I'm proud to say through my podcast and through this website we have impacted over 200 million lives in the last 10 years.

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Success Advice

20 Ways You Can Become a Powerful Communicator

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Emile Steenveld Speaker and Coach

Some people seem to naturally know how to effectively communicate in a group setting. They can express themselves clearly and listen attentively without dominating the conversation.

Being a powerful communicator is important for several reasons, including building and maintaining relationships, achieving goals, resolving conflicts, improving productivity, leading and influencing others, advancing in your career, expressing yourself more confidently and authentically, and improving your mental and emotional well-being. Effective communication is an essential life skill that can benefit you in all aspects of your life.

But, don’t worry if you don’t naturally possess this skill, as effective communication is something that can be developed with practice, planning and preparation.
 

1.  Listen actively: Practice active listening by giving your full attention to the speaker and responding to what they are saying.

 

2. Use “I” statements: Speak from your own perspective and avoid placing blame or making accusations.

 

3. Avoid assumptions: Don’t make assumptions about what the other person is thinking or feeling.

 

4. Be clear: Express your thoughts and feelings clearly and concisely by getting to the point and avoid using jargon or overly complex language.

 

5. Show empathy: Show that you understand and care about the other person’s feelings.

 

6. Offer valuable insights: When speaking in a group, provide a valuable takeaway or actionable item that people can walk away with.

 

7. Be an active listener: Listen attentively and respond accordingly, incorporating your points into the conversation.

 

8. Choose the right time: Pick the most opportune time to speak to ensure that you have the group’s attention and can deliver your message without interruption.

 

9. Be the unifying voice: Step in and unify the group’s thoughts to calm down the discussion and insert your point effectively.

 

10. Keep responses concise: Keep responses short and to the point to show respect for others’ time.

 

11. Avoid unnecessary comments: Avoid commenting on everything and only speak when you have something important to say.

 

12. Cut the fluff: Avoid being long-winded and get straight to the point.

 

13. Prepare ahead of time: Sort out your points and practice them before speaking in a group.

 

14. Smile and be positive: Smile and nod along as others speak, to build a positive relationship and be respected when it’s your turn to speak.

 

15. Take responsibility: Take responsibility for your own actions and feelings.

 

16. Ask questions: Ask questions to clarify any confusion or misunderstandings.

 

17. Avoid interrupting: Allow the other person to finish speaking without interruption.

 

18. Practice active listening: Repeat what the other person said to ensure you have understood correctly.

 

19. Use your body language too: Use nonverbal cues such as eye contact, facial expressions, and body language to convey your message and build rapport.

 

20. Be aware of the tone of your voice: it should be calm and assertive, not aggressive or passive.

 

By keeping these tips in mind, you can improve your communication skills and become a more powerful communicator, which can help you build better relationships, achieve your goals, and lead a more fulfilling life.

I you want to learn how to become more confident in life then you can join my weekly mentorship calls and 40+ online workshops at AweBliss.com so you can master your life with more success.

 
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