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Typical Mistakes Made By Investors.

Hi, in this review I’d like to highlight typical mistakes made by investors. By the way it’s beloved that most of mistakes are made by investors due to the lack of understanding of human nature. Studies have shown that, contrary to the postulates of classical economic theory, private investors are not entirely rational people seeking to extract maximum profit everywhere.

Here are the main mistakes made by investors identified after years of research. So the first one is excessive confidence. People naturally expect success and appreciate themselves above average. Excessive self-confidence is a trait typical for all investors, especially men. By the way accoding to some researches single men almost always have confidence in their ability to outplay the market. So it encourages them to trade on 67% more actively than unmarried women. As you might have guessed in most cases the results of this activity are rather negative.

When an individual investor is playing against guys from Goldman Sachs, it would be naive to believe that he’s more experienced. It’s like an intention to play one-on-one against a professional basketball player. The loss is predetermined of course.

Another great mistake is following the crowd. As children, who are fighting for a toy, investors often react to what others think about a particular market situation. I have come to the conclusion that in most cases private investors buy and sell only 10% of the shares, which are mentioned in the news, and they do not pay attention to the remaining 90%.

Sometimes shares are purchased due to their popularity, rather than their fundamental value. That’s why this purchase can be often overestimated, depending on investors’ mood changing. By the way investors are often too obstinate creatures. To my great regret stubbornness is also considered to be a great mistake on the way to a complete financial independence.

Smart investors tend to make shares fall to show losses. In such a way they hope to reduce taxes. In fact it’s logical for a few investors who are willing to admit defeat. That is the conclusion made by many market researchers after analyzing 10 000 brokerage accounts for three years. It turns out that investors are willing to sell the shares, which could have a tax on capital profits. In such a way they try to avoid taxes. These negative effects are not restricted. Such behavior not only causes an increase in tax burden but these shares grow on average by 3.4 percentage points more than the dips that investors try to keep in their portfolios.

So we need to make some conclusions. If you think that you play on the stock market better than the average investor, continue in the same way. But in such a way you are misleading yourself. I hope you won’t be “punished” by the market.

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