Experts who examined how financial decisions are made believe that the profitability of an investment is not only linked to a risk factor, but that it depends on investor psychology.
As the researchers say, the stock markets are influenced by the decisions of buying and selling a million irrational minds, given the fact that the way investors behave is determined by a number of biases.
So, here are some of the reasons that not all people are good for business, (such as ):
1. Too much self-confidence
Too much confidence in their own abilities to investors is evidenced at times when they are not confident in the ability they possess regarding predicting endings of the investments they make.[adsenseyu1]
2. Misplaced bet on the results of the past and not the future
When a company announces massive quarterly earnings, the contractor may consider that this will take place at the next earnings announcement, playing so that means something.
3. Not knowing the best way of thinking of new market developments
Lack of knowledge required to interpret new market developments is related to too much investor confidence in themselves. An example of this would be that a contractor makes initial investment based on information in its possession at the time. After starting his investment, the news is that it suggests that the estimates it had at the beginning could be wrong, but further analysis would only revise the old analysis.
4. Fear of losing
Loss aversion or reluctance in accepting possible losses are very dangerous for investors. If an investment of profit fell 20%, there is a reason for this. The best decision is to cover the loss and move on. However, most people can not help but think that the investment is likely to rise again in the future.
5. Memories related to past bad investments
How they do business may be affected by the endings of past investments. Business failures can lead to feelings of regret for investors. Minimizing regret occurs when an entrepreneur avoid investing because he wants to get rid of such emotions.
6. Folerance for risk changes change with the market
An investor’s ability to tolerate risk should be determined by personal financial circumstances, the long-term investment and the size of investments within its portfolio. However, most people tend to change their ability to tolerate risk depending on the direction the market is going. This makes the investors to buy expensive and sell cheap.
7 There are always reasons to explain why things did not go well
Defensive mechanisms that appear as excuses are directly related to trust too much in themselves. Most often, individuals who have failed in business begin to give reasons for their failure by phrases such as “what if…”, “almost good”, “not yet taken place” or “is a single index.”