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Note: The artciles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.

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Saturday, February 7, 2009

Mental mistakes in stock markets

There are so many common mental mistakes investors make,that often lead to losses.Some of these avoidable errors are:-

1)Overconfidence-This can lead to complacency and over exposure.It is the most common mistakes investors make when they are making profits.In equities you can never throw caution to winds.

2)Herd-like behaviour driven by a desire to be part of the crowd or an assumption that the crowd is right-If midcaps are rising people buy these stocks without even knowing anything about the companies.There are so many companies in our markets which only exists on paper,they moves with the winds or faces some unscrulpous activites,the simple gullible investors gets in at the top and that leads to a paralysis when the price suddenly falls and as soon as that happens you are stuck badly unable to take a call on the stock.Look whats happening now.

3)Excessive aversion to loss=Inability to book a loss when an investment goes wrong is the single biggest cause for losses to investors.Unless a stock has been bought on strong conviction of long term value,those who make investments for quick gains must learn to exercise stoploss.

4)Fear of uncertainity-This leads to inaction.If we book profits and the stock still moves higher,we feel bad.Therefore if a stock is moving up most investors refuse to book gains.And many a time this ultimately leads to losses.

5)Fear of making an incorrect decision and feeling stupid-This too leads to inaction.People often opt for inaction when faced with fear of making a wrong choice.However little do they realise that not acting in time too is a choice that they made unknowingly.

6)Reluctance to admit mistakes-This is another behaviourial pattern that leads to incorrect decisions.In markets,we are loathe to admit that we made a wrong decision.However admitting a mistake and taking corrective measures often saves a lot of money.

7)Following tips of self-proclaimed advisors aware of nothing-In a bull market so many self proclaimed analyst grows,they wud just name the company backed by nothing,the scrip moves up 10% and bang he is the next big bull that we all are looking for.This is another classical behavioural patern.Now simple investors would opt for that scrip without having any confidence or conviction and as soon as the price falls down,the villain is there to catch hold of.

8)Exiting out great scrips at lower levels and buying companies which exists on paper at highs-I get a lot of mails in my mailbox daily pertaining to these point,Arunji i entered your suggested great multibagger at these levels, it came down 20% from my level, so in fear i sold out,now it has more than doubled/tripled what to do?Buying into a scrip means you are actually buying a business.Its so hard to start a business and to run it,i mean just feel it, u have to have an office,plants,machiniries,employees so many hassles.But buying a single scrip of any company means you are the owner of a great business.That company is liable to share everything with you,you being the owner of that firm.But investors hardly cares about it..Do u?

9)Failing to accurately assess their investment time horizion-Most investors make investments for the short term but when the trade turns into a loss,they stick to it claiming that it was a long term call.This could often lead to huge losses.

10)Forgetting the powerful tendency of regression to the mean-This is the most important lesson for all investors.All stock prices must ultimately revert to their long term averages.All sharp run ups on dubious companies comes to an end in an most unpleasant manner.

No body can be perfect but if you can learn from your mistakes you are ought to get better.Learn and earn should be the mantra members.


Regards,
Arun
I can be reached at:arunanalyst@rediffmail.com

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This blog does not share personal information with third parties nor do we store any information about your visit to this blog other than to analyze and optimize your content and reading experience through the use of cookies.You can turn off the use of cookies at anytime by changing your specific browser settings.This privacy policy is subject to change without notice and was last updated on 20.3.2013. If you have any questions, feel free to contact me directly here: arunsharemarket@gmail.com Investment in equity shares has its own risks.Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that I consider reliable. I,however,do not vouch for the accuracy or the completeness thereof.This material is for personal information and am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.The stock price projections shown are not necessarily indicative of future price performance.The information herein, together with all estimates and forecasts, can change without notice.
 
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