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"Investing? It's key to be aware of these 4 biases"
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Orginally Written by Timothy Hooker 28 March 2018
Eliminating all biases when investing is nearly impossible. Financial markets are a prime example of the way human biases can manifest at either end of a spectrum of emotions: This is the core of behavioral finance, where the study of economics and psychology intersect.
People don't always make rational decisions when it comes to money. In fact, they usually do the opposite. However, most of us cannot afford to make mistakes with our retirement money. To secure your retirement, you should avoid these four common investing biases that often lead investors to make mistakes.
1. Hot-hand fallacy. This is the notion that because one has had a string of success, he or she is more likely to have continued success. For example, one study found that casino gamblers "bet more after winning because they believed that their chance of winning again was greater than before."
This also happens in financial markets, as investors make decisions based only upon recent information compared to all of the available data, which can often lead to thinking current trends are the best predictors of what will happen next.
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