In the capital investment market, some people make money and others lose money. Why is this? What should we do to gain a foothold in this market? The editor below will help you uncover this mystery.
In fact, in the investment market, there are no absolute masters or novices. But what determines whether you can make money is definitely not the amount of money or the level of your skills, but your greed and fear, which are the two major weaknesses of human nature. When the market is good, greed makes people forget risks; when the market is bad, fear makes people lose their way.
Every investor on earth knows the above sentence. However, it seems that there are only a few people who can truly overcome greed and fear, and Buffett is probably one of them. After all, defeating one's own human weaknesses is an eternal problem in the world. Although you know that greed and fear are the number one enemies of investment, when greed and fear come, you are at a loss what to do, leaving you with regrets after losing money.
But how do the human weaknesses of greed and fear manifest psychologically? Can we find ways to overcome them through psychological analysis? Dr. Johannoff Singer, author of "The Psychology of Investing," presents some possible paths. Dr. John Novsinger is a professor of finance at Washington State University in the United States and is a leading expert in the study of investment psychology. Financial research in the United States attaches great importance to empirical work, and Dr. Nofsinger is no exception. Through extensive surveys and research on investors, he confirmed a series of psychological biases he discovered and wrote "The Psychology of Investment" This is the premier work in the field of behavioral finance.
As expected of an expert in psychology, I will start by confirming that you are a smart person so that you can continue reading with pleasure. Although you have lost money on your investment, you are not stupid and you are not investing blindly. You are a rational person. But we must distinguish between economic rationality and professional rationality.
When a person makes an investment decision based on maximizing his own interests, he makes it based on his professional analysis ability, risk preference and the information he knows. However, this decision may not be professionally justified. Irrational, "good intentions lead to bad things". There are two reasons that lead people to make irrational decisions under rational motives: one is insufficient information (insufficient professional knowledge); the other is the influence of psychological factors.
If the level of professional knowledge and information adequacy can be continuously improved through learning, then psychological bias is inevitable, even for high-level asset management experts. The most typical case is Long-Term Capital Management, which has a fantastic investment research team, including bond traders from top investment banks, the U.S. Deputy Treasury Secretary, Nobel Prize winners and 24 Ph.D.s, as well as seemingly invincible investments. Sharp tool - complex and accurate arbitrage model.
The hedge fund started operations in 1994 and everything went smoothly. However, in 1998, affected by the Russian financial crisis, Long-Term Capital Management suffered a huge loss of 3.6 billion in one month. Fortunately, Wall Street bosses rescued it from bankruptcy, and it has not recovered to this day. The reason for the failure of Long-Term Capital Management was that when designing the investment model, it did not take into account the small probability of a financial crisis, resulting in the psychological bias of "overconfidence." It is extremely difficult to analyze your heart and look back on past investment mistakes, but if you really want to work hard to overcome greed and fear, you still have to go through this mental process.
It is basically a fantasy to achieve success without hard work. For example, the ancient man who hung his head and stabbed his buttocks in order to study and become an official must not have been a masochist; Liu Xiang's 100-meter hurdles world record did not come from singing karaoke - although singing is one of Liu Xiang's major hobbies. One of the characteristics of human beings is laziness. In fact, it is more difficult to overcome mental laziness than physical laziness.
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