Investment and Financial Bias

I have been slowly doing some reading over the past few weeks. Partly cos at work, sometimes really dunno how to kill the time. Others is that I wanna learn something else but of course have to start somewhere. So I have been borrowing some books from the library and slowly reading through. Be it somedays at work, somedays in my free time at home, reading a bit just before I sleep, on days where I dont have assignment or the courses, on weekends. Its good again to be reading stuff, both fictional and non-fictional and financial-related.

Among the few books that I have finsished so far, is a book about all the different types of bias that we have in the area of investment and finance. While reading through, I can see that I have quite a few of these bias. Eg a common one is that investors cannot stand Losses. A loss is felt 2.25times more than a gain. That's why we dont like to cut-loss on a wrong stock pick or when prices are falling. That is very true for me. Even more pronounced in my Dad.

Another is the belief that you are very competent and can influence the outcome or have superior knowledge of investment compared to others. This over-confidence in oneself can also explain why some portfolios are not diversified and solely concentrated in either equities or just those few counters. This is also something I am guilty of. My Dad even more.

There are many more biasness like recency bias, anchoring bias etc though I cant remember all, but I try to remind myself of such inherent bias-ness when going through more decisions and while still managing my own portfolio.

Its already in Feb, and I have 0 realized gains. I will remember the most recent lesson: where I sold off one batch of shares to 'realize' last year's 2nd target but in Jan, it shot up 34% more... So though I somewhat "Xin Tong' the supposedly perceived loss of the extra 34% gains but I have to remind myself of 2 things. First is that I made that decision to sell then so have to live with it. Secondly another financial maxim which I think is really really meaningful to this peceived 'selling-too-early' is "No One Ever Got Hurt Taking A Profit". It makes perfect sense. Irregardless, as long as the dollar end up in the pocket, dont be too engrossed over whether it could have been more or less.

With an understanding of how some of these bias affects certain behaviours, it helps to make somewhat better decisions and better deal with the outcome when those decisions were made. It makes things less of so beyond one's control. At least that's what it is for me.