By: Adrian Khiat
I had learnt an important lesson about investment during this bear market. Having started my career at the beginning of the bull market in 2003, I had seen how greed make the stock market go higher daily without reason why it should do down. Uncles and Aunties are boasting how much they made and analyst keep predicting how much further the market can head north. Things always looks so positive that it seems stupid not to invest.
At the start of this bear market last year, greed was still prevalent and many people pumped in more money thinking that the market will rebound very quickly. They take it as a gamble and don’t care what company they are buying into as long as trading volume is high and its volatile enough by percentage so that they can profit within days.
Fear started to creep in as bad news emerges from every directions. Market plunged because everyone fear losing money. From here, I had seen the other half of the market and half of what I learnt in behaviorial finance. Today, I just like to share what I had learnt about this topic.
What is Behavioral Finance?
* Traditional finance theory assumes that investors act rationally to maximize profit.
* Behavioral finance considers how human psychological traits can affect the way the market react and moves over time.
* Having some understanding of Behaviorial Finance, we can try to identify anomalies that can be explained by investor behavioral traits, and to identify opportunities to profit from exploiting the biases of other investors. Read more…