In the process of investment and financial management, many people often face a confusion: even if they have mastered the basic knowledge, why can’t they make money? There may be deeper reasons behind this problem.
The Secret of Investing Psychology
Investment does not rely solely on rational decision-making, psychological factors play a crucial role in it. Human emotional characteristics often have a negative impact on investment decisions and lead to investment failures. Understanding this is crucial for those who want to increase their investment returns.
The basic concepts of behavioral finance
The emergence of behavioral finance is to fill the shortcomings of traditional financial theory in practical investment decisions. Modern financial market theory assumes that people are rational and the market is effective. However, in fact, investors' decisions are often influenced by emotions and psychology. Here are some important concepts in behavioral finance:
Determine the effect
When faced with determining gains, most people tend to choose stable options. For example, the possibility of choosing to get 100 yuan without risk rather than taking the risk of getting 200 yuan, even if the latter has a higher expected return.Loss aversion
People react more intensely when facing losses. For example, if you lose 100 yuan, your pain will be greater than the happiness when you make a profit of 100 yuan. Therefore, many investors choose to continue holding after losses and are unwilling to cut their losses, and the fantasy market will rebound.Herd effect
Investors often follow other people's decisions and blindly buy or sell, rather than based on their own rational analysis. This phenomenon has caused a lot of irrational behavior in the market.Reference dependency
Investors' feelings of gains and losses are often relative, not absolute. When others make more, they may feel dissatisfied even if they make profits. This psychological state can easily lead to mistakes in investment decisions.
Psychological reasons for investment failure
Understanding behavioral finance theory can help us better identify the psychological causes of investment failure:
Not willing to cut off your flesh
When the market is not good, many investors would rather hold on to losing stocks and fantasize that they will rebound in the future. This mentality reflects the effects of loss aversion.Pursuing short-term returns
When the market performs well, many investors choose to sell in slight fluctuations and miss out on greater returns opportunities. This phenomenon is the combination of deterministic effects and reference dependence.Frequent stock exchange
When the market changes, seeing that friends’ investment returns are higher than themselves, they often blindly follow the trend and exchange stocks, resulting in greater losses.
The key to becoming a rational investor
In the investment journey, success or failure often depends on the investor's psychological quality. To become a rational investor, you need to have the following points:
Master financial management knowledge
Understand the basic principles and market laws of investment and formulate a reasonable investment plan.Emotional Management
Learn to control your emotions and don’t let psychological factors affect decision-making. Investors should remain calm and avoid making impulsive decisions amid market volatility.Find the right opportunity
When the market is performing poorly, be patient and wait for the right investment opportunities. At the same time, pay attention to changes in the global market and look for potential investment opportunities.
Summarize
Investing is a game between psychology and rationality. Through an understanding of behavioral finance, investors can better control their emotions and make more rational decisions, thereby improving investment returns. Investing is not just about luck, but requires a combination of wisdom and patience. I hope every investor can find a profit strategy that suits him in the market and steadily achieve wealth growth.
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