Two Biggest Psychological Misjudgments in my investment and trading behavior and their Antidotes
- Overoptimism Tendency: too greedy in my investment lots of times
- Quote from Demoshenes “What a man wishes, that also will he believe”
- 1st of my cases: I hesitated on selling my 401k/HSA even though they have 3% return so far (SP reaches intrinsic value) and SP was up continuously for three days , according to the rule that I set for myself, I need to sell them to wait for next dip (due t to the obvious uncertainty in current market), but I did not sell and kept hoping that earning season is coming and I can get more return if I stay in. Then today market drops by more than 1%, I missed the boat again.
- 2nd of my cases: On June 23th, market was up for several days and wishing Brexit would not happen, I wish and wish and wish, and wish to have more profit if I stay invested, but later, Brexit happened and I lost a lot at this.
- One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal to make decision.
- I need to differentiate the two ways of optimism: one – my ultimate optimism of life, this is nothing wrong of it; two – my overoptimism of things happened and will happen in my live, I should adjust my perspective, should not be overly optimistic about them, stay in realistic and use probability as an effective tool.
- Simple, Pain-avoiding psychological denial: I do not review my painful portfolio, hope everything will be better if I do not look at them.
- If I do this, this will cause terrible problems – I have missed many chances to salvage my portfolio
- 1st of my cases: I did not look at SP500 and my portfolio for over a year, just hoping they will be better, this made me lost much much more.
- Antidote is “It is not necessary to hope in order to persevere” – honestly face the truth and then try to find the answer.
Quoted from “Poor Charlie’s Almanack”
