7 Common Behavioral Biases of Stock Investors


Behavioral biases can impede returns on your stock investments. Do you exhibit any these latent biases?

Individuals are often creatures of habit (i.e. lazy) or may let emotions affect their decision making. Below are seven of the most common behavioral bias, gleaned from personal experiences, general observations of fellow investors and stock forums.

01Anchoring Bias


02Loss Aversion Bias


03Confirmation Bias


04Belief Perseverance Bias


05Naïve Diversification


06Availability Bias


07Hindsight Bias


Mitigating Effects of Behavioral Biases and Conclusion

Of course, the above is not an exhaustive list of behavioral biases, but should cover more than 90% of investment decisions faced by most private investors.

Behavioral biases are inherently difficult to address, as could be expected when it comes to critiquing your own performance. This is why sometimes even the most successful fund managers prefer to let a third party manage their personal portfolios.

Besides removing oneself from decision making in investments, one of the best ways to conduct self-discovery of your biases is still to regularly ask if you exhibit any of the above traits when evaluating an investment decision. In other words, would you have made a different investment decision if the portfolio concerned belongs to someone else?

If this is not possible, it might just be best to seek a second opinion from time to time from an objective person you can trust. After all, acknowledging that you suffer from behavioral bias (as we all do), is already winning half the battle.


Glossary | Forum | Disclaimer

Older news items:

Last Updated ( Monday, 21 July 2014 04:31 )