Fin

How to Mitigate:
Place stop-loss orders so that selling occurs automatically at a predetermined price.
Judge investments on the basis of their potential future returns, rather than past performance.
How to Mitigate:
Place stop-loss orders so that selling occurs automatically at a predetermined price.
Judge investments on the basis of their potential future returns, rather than past performance.
How to Mitigate:
Place stop-loss orders so that selling occurs automatically at a predetermined price.
Judge investments on the basis of their potential future returns, rather than past perform

4. Herding Bias
Herding bias refers to when investors follow the crowd instead of making independent decisions.
Effect:
• Buying into overvalued assets during market booms.
• Selling due to fear of missing out (FOMO) in plummeting markets.
4. Herding Bias
Herding bias refers to when investors follow the crowd instead of making independent decisions.
Effect:
• Buying into overvalued assets during market booms.
• Selling due to fear of missing out (FOMO) in plummeting markets.
4. Herding Bias
Herding bias refers to when investors follow the crowd instead of making independent decisio

Example
Investors began buying Bitcoin at its peak during the cryptocurrency binge in 2021, driven by general hysteria but got bulldozed later on.
How to Combat:
• Refuse to buy under the influence of popular perception or news.
Example
Investors began buying Bitcoin at its peak during the cryptocurrency binge in 2021, driven by general hysteria but got bulldozed later on.
How to Combat:
• Refuse to buy under the influence of popular perception or news.
Example
Investors began buying Bitcoin at its peak during the cryptocurrency binge in 2021, driven by general hysteria but got bulld

5. Confirmation Bias
Confirmation bias entails seeking and highlighting information that is in line with existing beliefs but ignores contradiction evidence.
Effects,
• Sustenance of bad investment choices by ignoring caution or other people's views.
• Overestimating the accuracy of selected information
5. Confirmation Bias
Confirmation bias entails seeking and highlighting information that is in line with existing beliefs but ignores contradiction evidence.
Effects,
• Sustenance of bad investment choices by ignoring caution or other people's views.
• Overestimating the accuracy of s

Illustration
An investor who is optimistic about a specific share reads only positive articles and pays no heed to about declining fundamentals.
How to Reduce,
• Seek multiple viewpoints and opposing views.
• Utilize information from various reliable sources to confirm assumptions.
Illustration
An investor who is optimistic about a specific share reads only positive articles and pays no heed to about declining fundamentals.
How to Reduce,
• Seek multiple viewpoints and opposing views.
• Utilize information from various reliable sources to confirm assumptions.
Illustration
An invest

6. .Recency Bias
Determining how much to weight a recent event versus historical data or long-term trends.
Overreaction to short-term market movements.
Misinterpreting the continuation of trends due to recent events

6. .Recency Bias
Determining how much to weight a recent event versus historical data or long-term trends.
Overreaction to short-term market movements.
Misinterpreting the continuation of trends due to recent events

6. .Recency Bias
Determining how much to weight a recent event versus historical data or long-term trends.
Overreaction to short-term market movements.

Example
An investor liquidates a long-term portfolio out of panic after experiencing a week of declines while the fundamentals were sound.
How to Reduce:
• Focus on long-term investment objectives and plans.
Use historical information for context in times of short-term events


Example
An investor liquidates a long-term portfolio out of panic after experiencing a week of declines while the fundamentals were sound.
How to Reduce:
• Focus on long-term investment objectives and plans.
Use historical information for context in times of short-term events

• .
7. Mental Accounting
Mental accounting refers to the practice of treating money differently because of its origin, allocation, or purpose.
Effects:
• Illogical segregation of funds, thereby suboptimally allocating assets.
• - that is, amounts realized from investments.
• .
7. Mental Accounting
Mental accounting refers to the practice of treating money differently because of its origin, allocation, or purpose.
Effects:
• Illogical segregation of funds, thereby suboptimally allocating assets.
• - that is, amounts realized from investments.

Example:
An investor believes that the money made in a stock is "free money" and invests in highly speculative assets.
How to Overcome:
• Treat all money as a single portfolio.
• Focus on overall portfolio performance rather than individual investment performance.
Example:
An investor believes that the money made in a stock is "free money" and invests in highly speculative assets.
How to Overcome:
• Treat all money as a single portfolio.
• Focus on overall portfolio performance rather than individual investment performance.
Example:
An investor believes that the money made in a sto

8. Endowment Effect
The endowment effect is the tendency to overvalue anything simply because you own it.
Effect:
• Resistance to sell a portfolio of losing stocks due to emotional attachment.
• Not being objective when reassessing holdings.
8. Endowment Effect
The endowment effect is the tendency to overvalue anything simply because you own it.
Effect:
• Resistance to sell a portfolio of losing stocks due to emotional attachment.
• Not being objective when reassessing holdings.
8. Endowment Effect
The endowment effect is the tendency to overvalue anything simply because you own it

Illustration
A shareholder continues to hold on to a company's stock for many years even as its prospects dwindle down due to their belief in the company.
How to Reduce It
• Review your portfolio frequently and re-assess investments without attachment to the fact that you own it.
Illustration
A shareholder continues to hold on to a company's stock for many years even as its prospects dwindle down due to their belief in the company.
How to Reduce It
• Review your portfolio frequently and re-assess investments without attachment to the fact that you own it.

• .
9. Availability Bias
Availability bias is when decisions are based on available information instead of a well-rounded view.
Impact:
• Rare events are more likely overestimated, such as market crashes or times when the market experienced a crash.
• Less visible, but critical, risks or opportunities were not focused upon.
• .
9. Availability Bias
Availability bias is when decisions are based on available information instead of a well-rounded view.
Impact:
• Rare events are more likely overestimated, such as market crashes or times when the market experienced a crash.
• Less visib

How to Overcome Cognitive Biases
1
• Understand common biases and their influence on investment behavior.
• Be aware of market dynamics and economic principles.
How to Overcome Cognitive Biases
1
• Understand common biases and their influence on investment behavior.
• Be aware of market dynamics and economic principles.
How to Overcome Cognitive Biases
1
• Understand common biases and their influence on investment behavior.
• Be aware of market dynamics and economic principles.

Example:
One investor stays away from equities all together after hearing some news about a market crash although the record of long-term growth is present.
How to Mitigate:
• Decisions should be based on balanced risks and opportunities.
• Avoid sensational news and anecdotal evidence.

Example:
One investor stays away from equities all together after hearing some news about a market crash although the record of long-term growth is present.
How to Mitigate:
• Decisions should be based on balanced risks and opportunities.
• Avoid sensational news and anecdotal evidence.