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1/8 Thread: My behavioral biases
It is absurd to think market is riddled with behavioral biases but I myself am somehow immune from these very biases.
Most investors are aware of behavioral biases of other investors but rarely of themselves.
So what are my behavioral biases?
It is absurd to think market is riddled with behavioral biases but I myself am somehow immune from these very biases.
Most investors are aware of behavioral biases of other investors but rarely of themselves.
So what are my behavioral biases?
2/8 One particular bias that has been a recurring theme in my investing is anchoring bias.
The anchor being the price I bought the stock.
I have bought stock that's 10-20% above the initial buying price, but I have never bought it >50% above initial price.
The anchor being the price I bought the stock.
I have bought stock that's 10-20% above the initial buying price, but I have never bought it >50% above initial price.
3/8 In many cases, increasing weight to winners would enhance my portfolio results.
Portfolio performance is not just a function of stock picking skills, but also a function of weighting of each stocks.
Portfolio performance is not just a function of stock picking skills, but also a function of weighting of each stocks.
4/8 If your biggest winner had lowest weight in the portfolio, you may not feel the reward of picking the right stock.
5/8 The other shortcomings I have noticed is I don't have a good idea on how good my selling decisions are.
I would monitor stocks after selling them for a few weeks/months, and then generally stop looking at them. Some of these stocks remain down a lot making me feel justified.
I would monitor stocks after selling them for a few weeks/months, and then generally stop looking at them. Some of these stocks remain down a lot making me feel justified.
6/8 On the other hand, there are stocks I have sold way too soon.
Sometimes I think I should maintain a paper portfolio which comprise of the stocks I have sold and monitor them on an ongoing basis.
So far, I have been too lazy to do it, but it's something I plan on doing.
Sometimes I think I should maintain a paper portfolio which comprise of the stocks I have sold and monitor them on an ongoing basis.
So far, I have been too lazy to do it, but it's something I plan on doing.
7/8 A bias that's sneaky and hence difficult to spot is confirmation bias. It's just SO comforting to read pieces that confirm my thesis that it is nothing short of an addiction.
And it is very very uncomfortable to read a well-written short pitch on a stock that I own.
And it is very very uncomfortable to read a well-written short pitch on a stock that I own.
8/8 Investing is, however, one of the few professions in which we have strong incentives to listen to opposing viewpoints even when it's uncomfortable.
We pay for our biases. And we do ourselves a great favor by defeating our biases.
What are some biases that affect you?
We pay for our biases. And we do ourselves a great favor by defeating our biases.
What are some biases that affect you?
