Emotions aren’t always your friend when it comes to investing. In fact, they can lead to trouble in some very specific ways…
Here’s today’s understatement of the year: emotion plays a major role in investing.
That’s not always bad. Emotions come into any big decision, and it’s important to feel good about your portfolio. Emotions dictate risk tolerance, after all. The same goes for picking companies with a strong sense of mission. Those are the decisions that help you sleep at night.
The problems start when emotions become biases. That’s when you, as an investor, can make bad choices that don’t leave you personally or financially any better off. What do those biases look like? Here are the top ten to keep an eye out for the next time you open up the portfolio…
Bias: Focusing on an actual or perceived expertise on a narrow slice of the market
Overconfidence isn’t necessarily what it sounds like. Yes, sometimes this bias is caused by an investor who knows less than he thinks. That guy who caught 15 minutes of “Mad Money” and then gives lectures at a dinner party is a classic example.