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The psychological pitfalls of investing

This is how you recognise the psychological pitfalls of investing

Psychological research has often shown that we do not make most of our choices consciously. These can be good choices, but sometimes wrong ones. Even when it concerns investing. ‘Buy when things are going well’ and ‘Sell when things are going badly’ are beginner mistakes that you obviously don’t make anymore. You know better (right?). However, you are probably also more driven by your subconscious and your environment than you think. Here you will discover a few major pitfalls.


We seek confirmation of our own view of the world

We read the newspapers and websites that bring the news the way we like to see it. We often think people who agree with us are nicer. Why do we do that? Because we all suffer from confirmation bias. This causes us to only select the information that suits our way of thinking. And we ignore information that contradicts this. So if you invest a lot in biotechnology, you unconsciously look for information that confirms your choice. That can be dangerous. Since you are not open to signs that indicate the opposite.

We behave like herd animals

As social beings, we imitate each other a lot. Even when we invest. We copy behaviour. If everyone around you is investing in cryptos, shouldn’t that be a good choice? The older generation can still remember the internet bubble at the beginning of this century. Due to spectacularly rising prices, investors then increasingly invested in IT companies. These turned out to be mostly companies that had not made a dollar of profit for years. The bubble burst and a crash ensued.

We cannot handle loss

Loss largely occupies our thoughts. Logical, because it is not pleasant. Research has shown that people would rather avoid a loss than receive the same amount as profit. Losing 100 euros affects us more than winning 100 euros. There’s a good reason we warn you: “Investing involves risks. You can lose (part of) your investment.” Investors find it difficult to deal with loss. They lose sight of the long term and the entire portfolio and are totally preoccupied with the current loss. What is the danger inherent in this? That you wait too long before taking a loss and sell when the price is at its lowest point. With maximum loss as a result.

We like to do what Warren Buffet does

In the search for returns, many also look for the opinion of stock market gurus. Because if a successful stock market millionaire says it, then it must be right? After all, he has had ‘demonstrable’ success!

Ask yourself whether:

  • the opinion of such a guru really is the entire truth
  • it applies to your situation and under current market conditions
  • you can achieve the same results as a specialist company of a stock market guru.

How do you stay away from psychological pitfalls?

Recognising the pitfalls is a good first step. It is also good to realise that many subconscious choices are also made hastily. Making an investment plan protects you from making decisions too quickly. By setting rules for yourself, you will be less likely to be influenced by day-to-day madness. With an investment plan, you keep your focus on your long-term investment goal. After all, that is the most important thing.