Investing is as much a psychological activity as it is a quantitative one. Human beings are not always rational, why? We are subjected to numerous biases which hamper our decision making, ultimately resulting in subpar decisions and performances. Here are some of the more common ones that every investor should know.

Anchoring

Anchoring occurs when individuals use an initial piece of information to make subsequent judgements. Once a reference point – or an anchor – is set, other judgements are made by adjusting away from that anchor.

For example, shoppers are inclined to think that an item on discount is cheap even though the only established fact is that it is cheaper. Similarly, the stock price which has declined from a previous high may fool some investors into thinking that it is now cheap. I would like to bring in the topic of oil prices at this juncture. Oil prices ...