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Last week, CSU professor, Dr Vickie Bajtelsmit discussed the 7 most common investor mistakes in her talk entitled “Behavioral Biases and Investment Mistakes”. She has been at CSU since 1991 and is currently director of the Master of Finance program. Her area of expertise is “Behavioral Finance” - the study of psychological and cognitive issues that influence our investment decisions.
Much of traditional economic theory assumes that investors always make rational decisions. But (breaking news) we do not - we are human. We are programmed to use mental shortcuts which commonly lead to decision errors.
Seven common errors (biases) were described-from our often counterintuitive reaction to a falling stock value to overconfidence and “herd mentality”. Corrective methods were provided.
The bottom line is we are human, not rational, but “normal”. There is no substitute for self control and research when investing. And… always-buy low and sell high.