This weekend I attended a behavorial investing workshop and it opened my eyes to some of the subconscious decisions we make that affect our investment decisions. Every little decision we make regardless if you’re a long-term investor or short-term investor, has an impact on your returns whether for a positive gain or a setback in the portfolio. We are in a day and age where there are many “gurus” or people selling courses that claim to allow you to make a minimum percentage return if you use their strategy. This applies to one of the emotional concepts I learned in which people are more susceptible to take advice and recommendations from people they are familiar with or claim to have a great track record. Even the best fund manager or stock analyst isn’t going to be accurate 100% of the time when recommending whether to buy or sell a stock or fund. With that being said, always do your due diligence when taking recommendation or suggestions.
The second concept I wanted to touch on pertains to situations where you conduct your own research and find an investment you like. Your mind is set on it and you can’t wait until the market opens the next day to buy it. You found a couple articles that support your thesis on the stock and you’re locked and loaded. Have you ever stopped to think about what downsides there are to buying this stock? Are there any red flags in the financials that could possibly turn this into a losing investment decision. Naturally, humans look for details that support their conviction about an idea. When considering an investment, always evaluate the upside and downside. As eager as we are to achieve positive gains on our investments, there are two sides to an investment. The side you hope to be on and the side where things don’t turn out as planned. Be sure to identify some of the possible risks that come along with new stocks you are considering. I will touch on more behaviors that we exhibit in future posts.