Wednesday, December 16, 2009

Understanding Our Own Humanity

taken from

Are we our own worst enemies when it comes to investing? The answer seems to be a resounding “Yes”, if we are to believe the work done by psychologists in the field of behavioural finance. To put it very briefly, people and as a result investors, tend to exhibit cognitive biases such as over confidence, biased judgements, herd mentality and loss aversion, that impair their ability to make sound investment decisions.

Do check out the article by clicking on the link.

Personally, I think that it is good to understand why we make so much investment mistakes. By cutting down the mistakes, we increase our odds of making money in the long run. Remember, making mistakes are alright as long as you learn from it.

Also, costs are very important. If you factor in the investment that you could have made from the transaction fees incurred, it will make a significant difference in the long run.

i will talk more about long run investing when i do a review for stocks for the long run book again, in case you missed it the first time.

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