Investing 101 - The Impact of Cognitive Biases
In the last episode of Investing 101, we mentioned types of cognitive biases. Let us now move on to the impacts that they cause, and how they hinder our decision making process.
The fatal con of those biases is, they make investors wrongly deduce the ideal timing of entering the market, which ends up hampering the opportunities of obtaining returns. Due to the fact that amateur investors lack hands-on experience and knowledge, they could only blindly imitate people with similar experiences. This has caused them to inevitably receive misleading information. To further explain, let’s just pick up from what we left off last time. In the circumstances where investors have missed out the 10 best days at the market benchmarking against the S&P 500 Index, their performance has already been halved down from 8.2% to 4.5%. Worse comes to worst, their performances have exponentially dropped to zero when they excluded the 30 best days.
Of course apart from cognitive biases, there are numerous factors that are accounted for negatively impacting your performance, such as costs and risk tolerance. Here is the link directed to our last blog with the risk tolerance survey provided, feel free to get to know more about your risk and investing preferences! Frankly speaking, adopting a moderate level of doing things could be your ultimate guide to investing, as you would be living in fear and worry if you go for high-risk-products, or only be rewarding with minimal returns if you put low-risk-products into your consideration set.
There is only one thing to keep in mind - “Good investing is boring”. We should opt for small but gradual returns over time, instead of aiming for the jackpot in one go. Your hard work would definitely pay off, only if we patiently wait for our seeds to grow.
Now that our series of “Investing 101” is finally coming to an end, we will be sharing more knowledge in other fields in investing. Follow our social media to make sure you don’t miss out on things!