Friday, 3 August 2018
The Psychology of Investing Biases
Many of us may have already learnt and put into practice a few if not all the known psychology of investing biases.
How about taking profit is never wrong; but missing those huge capital gains and dividends over the following years?
What kind of investing bias is this?
Anyone knows?
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Loss aversion ... cutting winners short.
ReplyDeleteKiasu mah ... Kekeke! Don't let a win turn into a loss haha.
Taking profit is ok, but ideally should be done when the asset is expensive e.g. within 10% of its highest historical valuation, or current valuation is +2 or +3 standard deviation from its long-term average.
Rebalancing is 1 method for this ... But not too frequent...
Or for trend followers ... when a predetermined trailing stop is hit...
Spur😁
For established blue chips for many years may be true.
ReplyDeleteVery seldom, can see them suddenly become growth companies again.
For new IPOs, or new companies how to estimate them.
Like Keppel D. C. Reits, i sold them much too early though i made quite a small profit.
At IPO, some established smarter & successful bloggers didn't even want to invest in them and there after.
Because it was said to be high capex reits.
Just like i never invested in SIA even once IIRC.
DeleteActually any stock can be invested if U are sure the price is right.
But then U must also known when the price has become "left".
Now maybe U will understand why i look at the market daily without fail.
ReplyDeleteEven then i missed many opportunities due to 101 reasons.