Maturity in the Investment process.

 

It doesn’t matter, how much you have studied. It’s how much you are working.

It doesn’t matter, how much you are working. It’s how much you are earning.

It doesn’t matter, how much you are earning. It’s how much you are saving.

It doesn’t matter, how much you are saving. It’s how much you are investing.

It doesn’t matter, how much you invest. It’s how you are investing.

It doesn’t matter, how you invest. It’s how you are protecting the investment.

In real life, as you grow in your life, you become mature day by day. As you get mature, your thinking is also changed. What you think is most important till yesterday becomes irrelevant.

Unfortunately, when it comes to investment, instead of behaving like a mature person becomes a victim of various Biases.

While people like to believe that they are rational and logical, the fact is that people are continually under the influence of cognitive biases. These biases distort thinking, influence beliefs, and sway the decisions/judgments that people make every day.

All this happens due to the following reasons.

1. Your Mind Likes to Take Shortcuts – The Availability Heuristic.
The availability heuristic is the tendency to estimate the probability of an event based on how many examples immediately come to mind. After seeing a news report / reading an article favouring the Bull Market / Bear Market, you might start to believe that the Market is in the Bull or Bear phase, and start making a decision based on that belief and overlooking the #Fundamentals.
One of the most prominent weaknesses of your brain is that sometimes it’s just plain lazy. When trying to solve a problem or make a decision, your mind often falls back on rules of thumb or solutions that have worked well in the past. Sometimes it is a helpful and practical approach, but sometimes this approach fixes big problems

2. Your Thinking Swayed by Hidden Biases.
These are predispositions that can influence how you perceive people (An #AuthorityBias), how you perceive events (The #HindsightBias), and what aspects of a situation you pay attention to when making a decision.
The Authority Bias is nothing but a Tendency to believe that the words they say are final.
The Hindsight Bias is nothing but a Tendency to see events as more predictable than they are.

3. Your Brain Likes to Play the Blame Game -The Self-Serving Bias.
The #self-servingBias is a tendency for people to give themselves credit for successes but lay the blame for failures on outside elements. When something adverse happens, it is only natural to look for something to blame. Sometimes, though, we twist reality around to protect our self-esteem. In other words, we may have screwed up but don’t want to take responsibility for that.

4. Your Brain Can Be Blind to Change.
There is so much going on in the world at any given time. It can be difficult for the brain to take every detail. As a result, it’s sometimes tough to completely miss major modifications that happen right in front of our eyes. It is called change blindness. In studies, when conversational partners swapped during a brief interruption, the majority of people did not even notice the change.

5. Confirmation Bias.
#ConfirmationBias is the tendency to listen more often to information that confirms our existing beliefs. Through this bias, people tend to favour information that reinforces the things they already think or believe.

6. Optimism Bias – I always say this is an “All is Well Bias.”
#OptimisticBias is the tendency to overestimate the probability of good things happening. And underestimate the chances that adverse events will affect them. Essentially, we are very optimistic about the good.

Optimism is like steroids if taken overdose will be harmful.

Ultimately, it doesn’t matter, which bias is responsible for your wrong decision, it is to identify and rectify your mistakes.

Being a master in Investing is possible when you defeat your emotions and bias.

Once you achieve this will be a sign of maturity.

Earlier we published some articles, like Lollapalooza Effect Part 1, Part 2, and Part 3 on how biases affect your investment decisions.