Following are the 5 psychological traps that can ruin your investments:
1. Becoming Blind Fan: Many people fall in love with some companies and stick to them as investors.
To avoid this trap, an investor should be flexible and cautious that he is not getting attached to companies. Investors should keep on watching its performance and know when to withdraw or reduce investment.
2. Falling in Love with Junk Stocks: People fall in love with their investment decisions and cling to shares whose market value has declined and immediate chances of recovery are remote. They do not take decisions either to withdraw or reduce investment. They hold on to this belief that their past decisions of these investments were infallible, and the stocks will turn around. Investor can get rid of this trap in taking detaching view while reviewing the portfolio.
3. Seeking Confirmation only from Others: Many investors take investment decision on the basis of others views. To avoid such traps investor should rationally look into the background of these investors from which he is seeking advice. Investor can also take both negative and positive views and then take decision of investment or holding the existing investment.
4. Copying Mind-Set: Investors take investment decisions based on performance of successful investors. They try to follow the investment decisions of such investors. But people make investment decisions based on their own psychological make up, investment goals and family obligations, which will vary from person to person. One should avoid investment decisions, which are made by blindly following successful investors.
So, while taking your investment decisions consider your view point, your knowledge, and your investment goals. Don’t follow anyone blindly.