Module 8 ยท Building a Portfolio and Managing Risk
Our own psychology - fear, greed, overconfidence - is often the biggest risk in investing.
Investors are human, and human biases cost money. Herding means buying what everyone else is buying; loss aversion makes us hold losers too long; overconfidence makes us trade too much.
Recency bias makes us expect the recent past to continue, which is rarely true. Confirmation bias makes us seek only information that supports our view.
The fix is process: write down your reasons, stick to a plan, and question your own conclusions.
Example: Adani Enterprises
During hype cycles, stocks like Adani Enterprises can be bid up by herding and fear of missing out. A disciplined investor asks what the business is worth, not what the crowd is doing.
Herding in investing means:
Recall a time you were tempted to buy a stock because it was going up. What bias was at work?