Investment Madness
Investment Madness is a great introductory overview to the field of behavioral finance. ... The fact is that most people will prefer to hold onto a bad investment in order to avoid feeling regretful about selling a stock that could later go up in value. ... Some of these biases can be very dangerous to our ability to make sound investment decisions. ... People will systematically remember their investment returns as higher than they really were. ... You should also write down your investment ideas and goals, along with your reasons for making each new investment. You will now have a thesis for buying or selling that will not change after you make an investment. ... When testing your thesis, try to avoid talking about stocks with people who share your views because you will both end up feeling smarter and more entrenched in your investment than ever before. If you have to talk to these people, tell them how you came about your investment idea and ask them if your logic and the way you came to your conclusion is sound. In order to avoid processing information in a way that is consistent with your investment, try to find people who have a different viewpoint. ... More often than not, message boards have led people to make poor investment decisions. Acting on a hot tip, rather than independent investment research, is one of the worst things you can do as an investor. ... As an investor, I have to come to terms with the fact that I will never be able to completely disregard my natural biases when making investment decisions.