Illusion of control can cloud judgment in investing from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
The illusion of control can lead investors to overestimate their ability to predict the outcomes of their investments. When individuals believe that they have control over a situation, they tend to be more confident in their decisions. This confidence can cloud judgment and lead to risky investment choices. Investors may feel that they have the power to influence the market or the performance of a particular asset, when in reality, there are numerous external factors at play that are beyond their control. This illusion of control can be especially dangerous in the world of investing, where uncertainty and unpredictability are inherent. Despite the best efforts of investors to research, analyze, and strategize, the market can still behave irrationally and unexpectedly. By assuming that they have more control than they actually do, investors may take on unnecessary risks or fail to adequately diversify their portfolios. F...
Similar Posts
Seek professional guidance when needed
When it comes to making important financial decisions, seeking professional guidance can be crucial. A financial advisor can pr...
Identify your financial goals
To begin investing in mutual funds, it is crucial to first define your financial goals. This step is fundamental as it forms th...
Building a strong foundation in financial literacy
To become a successful investor, it is crucial to establish a solid understanding of financial literacy. This involves grasping...
Avoid highcost financial advisors
High-cost financial advisors often charge high fees for their services, which can significantly reduce your investment returns ...
Availability bias leads to distorted decisionmaking
Availability bias is a cognitive shortcut that occurs when people make decisions based on information that is readily available...
Avoiding speculative investments
When it comes to investing, one of the most important principles to remember is to avoid speculative investments. Speculative i...
Selfattribution bias makes investors attribute successes to their own skill rather than luck
Self-attribution bias is a common psychological quirk that affects how investors perceive their own successes. When investors e...
Knowing when to buy and when to sell is a skill honed over time
Having a keen sense of timing in the stock market is a skill that can make or break an investor. It requires a delicate balance...
Emotions must be kept in check when making investment decisions
Investing is not for the faint of heart. It requires a rational and disciplined approach, especially when it comes to making de...
Mutual funds offer benefits such as diversification
One of the key advantages of investing in mutual funds is the opportunity for diversification. By pooling together the assets o...