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#Knowledge : Loss Aversion
The famous psychologist , Daniel Kahneman and Amos Tversky, who are sometimes referred to as fathers of behavioral Finance, postulated the prospect theory
which explains that people tend to take more risks simply to avoid acknowledging a certain loss and avoid taking extra risk even if it entails a higher profit potential.
As an investor, each one of us experiences this to varying magnitude. Say one buys a stock and after a year it is trading at half the value.
What are the chances of one to sell and booking the loss? Very few.
Most of us have been in this position and we believe that it is better to hold on till the price appreciates. OR we even buy more on the pretext of averaging the cost of purchase.
This is due to loss aversion. The pain of a loss is three times more than equal amount of pleasure.
This same anomaly also makes us sell the winners very fast. Hence we always end up holding the losers and selling the winners.
To successfully implement a value strategy, one has to learn to deal with such impulses because the volatility in market can test one more often than one can bear to handle.
#Knowledge: Wise words
“We typically trade our beliefs about the market and once we’ve made up our minds about those beliefs, we’re not likely to change them. And when we play the markets, we assume that we are considering all of the available information. Instead, our beliefs, through selective perception, may have eliminated the most useful information.”
Stock returns multiply over time. Hence, Patience and Discipline are it’s best friends.
#Technical charts : Educational Only : Break out of flag….watch closely…
#Bookathon : To Achieve Financial Freedom
You can think of investing as a long-term journey with many starts, stops, changes of scenery and occasional bumps. We believe that you are much more likely to enjoy the journey or at least endure it, and reach your destination safely, if you know what to expect along the way. Your own psychology and ability to handle the emotional ups and downs of investing are likely to be important determinants of your long run investment success.
*Professional investors/trader on niftymillionaire platform is Bindul shah. (Sebi Registered) Sebi Registration : INH000003663 (Bindul shah Sebi Registration : INH000003663)