The last few blogs sports a central theme: stock market prediction is a loser’s game for 99% of humanity (the other 1% are the odd investment geniuses we now know but wished we had known much earlier).
If market timing, momentum trading, contrarian trading, technical analysis etc. are detrimental to our wealth, then why do so many still swear by these activities? I believe that the reasons lie beyond finance and has a lot to do with psychology. In particular, understanding how our beliefs inform or misinform us is the first crucial step in improving the way we manage our personal finance and investments.
At the risk of over-simplifying a huge literature on this subject, here are three main reasons why we often become victims of the loser’s game:
#1 We are pattern-seekers.
The “we” here refers to practically all of us. This is because the normal human brain is hard-wired to