Six self-defeating behaviours that get investors suboptimal results Investor
Let’s take a look at some of the more common behavioural pitfalls that investors would be well-advised to avoid when making decisions.This is the tendency of people to pay close attention to information that confirms their beliefs and ignore information that contradicts it. Our natural tendency is to listen to people who agree with us because it feels good to hear our opinions reflected to us. We first construct hypotheses, and then subsequently look for information that supports them.
For example, the Nasdaq from 1996 to 2000 exploded to 4,131 points from 1,058. Many companies in the index had little or no earnings, yet their stock prices were increasing at a parabolic rate. Investors feared that if they didn’t get in, they would miss out. The dotcom bubble then burst, and trillions of dollars of investor wealth vanished as the Nasdaq plunged to less than 2,000 points by the end of 2001.
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