A large part of being a successful investor isn’t just making the right moves, it’s also about not making the wrong moves. There are a lot of psychological and behavioral traps which people fall into and they lead to wrong decision making which can have a major negative impact on their lives. In this post, we will talk about important things you shouldn’t do before you make major investment decisions. Let’s get started.
Things Not To Do Before Making Investments
Don’t blindly cling to anything
This happens when a person is blindly attached to their initial thoughts and not open to new ideas. Let’s get a better understanding of the issue by giving an example right away: Let’s say there is a very important football match tonight and you have decided to bet. You don’t know either team very well, so you’re thinking of making a decision by looking at the statistics. Your friend sees that one of the teams has scored three or five goals in the matches they have played in the last period and says, “This team will definitely win!” You bet accordingly. The match starts, the minutes pass, but your team can’t score a goal. You ask why? Because the defense resistance of the opposing team is too much! Did you look at all the features of the opposing team while betting? Unfortunately, no.
The remarkable decline of the popular American electronic goods chain, Radio Shack is a great cautionary tale in people and companies clinging to traditions and not expanding their horizons. Radio Shack scoffed at the idea of online shopping and has now been reduced to just 70 operational stores from 7300 in the 90s. People who keep dismissing crypto trading in Bitcoin (with bitcoin prime) initially, are now ruing their chances of getting a piece of the lucrative crypto pie when it was cheap.
If you do not want to fall into the dire situations that we have revealed above, always be open-minded and think flexibly. Don’t be swayed by new sources of information, and never forget that companies are just as ephemeral as life itself.
Don’t get agitated
Investors sometimes say, “What happened in the past will happen in the future.” They act as if there is no uncertainty in the market. Unfortunately, the thing called uncertainty in the investment world is always on our minds.
We all know that events such as some ups and downs, overvalued stocks, bubbles, small bubbles, sectoral losses and panic-induced sudden sales in the Asian geography will always occur in the markets. In that case, the stock market in question is “History repeats itself, the same thing that happened in the past will happen in the future!” If a large number of investors experience an explosion of self-confidence in this way, the “agitation trap” comes into play and irreversible mistakes are made in a short time. “I’m ready to put my best.” Investors who set out by saying that and were most affected by the collapse are those who do not think that the rise will never end and do not make careful calculations. As you know, the most losers in this world are “Nothing will happen to me!” They are those who adopt the phrase as a philosophy of life.
Avoid sunk cost
The sunk cost trap is also an extremely important phenomenon. The situation in which the person psychologically defends the choices he has made before and acts by not accepting the facts is called a sunk cost trap. As the name suggests, those who fall into this trap usually do not end well. Most people get over their ego and say, “It’s my fault, I made bad decisions and I lost.” However, in the business world, it is always the most logical move to see the facts objectively and to end bad investments as soon as possible and turn to opportunities that promise more profit.
If you remember, in 1999, when the dot.com buzz was at its peak, those who flocked to technology stocks had to wait at least 10 years before they could make a profit, let alone make a profit. In such cases, you should not fall into the “sunk cost” trap and turn to investments that will allow you to make up for your losses, that is, you should set aside the money you lost and embark on new adventures. Also, keep this in mind: If you get emotionally attached to bad investments, things get even worse, and in the end, you will always be the loser.
Avoid confirmation bias
A person sometimes makes a mistake and then finds other individuals who make the exact same mistake as himself and tries to comfort himself.” To avoid this, always seek unbiased advice. Stay away from people who have given you dodgy advice in the past. Don’t hold on to your investments forever even when they are consistently giving you negative returns. If you’re asking, you’re trying to find someone else in a difficult situation like you, which means you’re about to fall into the approval trap. Maybe you can meet people who have the same difficulties as you and say, “I am not alone.” In the short term, you can relax yourself a little.
Don’t be blind to what’s happening around you
Sometimes you go blind and refuse to see what’s going on around you. Naturally, the current situation gets worse. In fact, “Others are in the same situation as me.” Even those who do not say, do not fall into the trap of approval, sometimes ignore the obvious market realities and take no action and deliberately begin to wait for that bitter end.
A voice inside you says, “There is something wrong with my investments.” If some scandals have occurred in the company where you put your money, or if the market you are in is giving disaster signals, but if you stubbornly avoid following the economic news despite all this, we are sorry, but you are a prisoner of the blindness trap.
Don’t get cocky
Being cocky in life is always dangerous. Many investors are overconfident and disregard the words of the experts. You may be highly educated or stand out for your quick wit, but that doesn’t mean you shouldn’t ignore the experts and their advice. In addition, considering how complex the markets are, we don’t even need to tell you how risky it is to rely solely on your own intellect. Throughout history, many investors said, “No one can pour water into my hands.” He lost everything he had by acting with his logic. The worst part is that most of these investors tend to fall into the other traps we mentioned above.
There are good universities in every corner of the world and extremely smart lecturers working there. Some of them invest thinking that they will be successful in the stock market and they are seriously successful. Others, on the other hand, are defeated in their first investments and learn the hard way that the account at home does not match the market. It may sound strange, but someone with a doctorate in finance can make you lose money, while an experienced and sharp-witted investor who is a high school graduate can smell the markets and make you wealthy.
Avoid getting a false sense of security
The false certainty trap is an event related to investors’ perceptions of risk. Investors take less risk if they think that the income they will get from their portfolio will be sufficient. However, if things are not going well and they sense that they are going to lose money, they may take a more aggressive stance and risk a lot of things.
In other words, if things are good, risk is avoided, whereas if things are bad, more risk is taken. The main factor that is effective here is the mentality of “regaining the lost”. Investors are willing to go on the offensive with all its lines in order to regain the capital they have lost. However, at this point, there is no aim to get up again and increase the capital in hand.
Don’t just follow others
Following others blindly is always very risky because others might be following someone who is blind themselves. Everyone’s psychological structure is different from each other and they approach issues such as family, work and career expectations in different ways. So, of course, you should know what other people are doing and thinking, but there is no such thing as a general rule for their situation or views.
In short, keep a close eye on the thoughts and actions of the people around you, but never “They are doing this, so I should do it too.” Don’t jump headlong into the relativity trap. Remember, in the end you are only investing for yourself and only your own situation is directly important to you. What works for others, might not work for you. You do you, in every field of life, including investing.