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Source WeChat public account: Ah N Quantification
Psychological research shows that human perception and memory are not able to accurately capture and record external information like a camera. The way you perceive and remember things is affected by previous experiences, beliefs, and situations.
Investors’ decision-making is limited by information processing capabilities and psychological factors, with the following common manifestations:
representativeness bias
Investors review historical trends and summarize repeatable patterns as the basis for their own decisions. However, the capital market is a complex system, and the experience summarized by investors must be one-sided. On the other hand, capital markets are also evolving, and investors’ experiences will become outdated.
History will not simply repeat itself. Facing failure is a required course for every investor. Unexpected and even unpredictable things will happen, and carefully arranged plans will fail. Investment technology has gradually developed in the process of continuous failures, from a single K-line to a combination of K-lines, from moving averages and MACD to complicated indicators, to the current quantitative trading, all of which are like this.
anchoring effect
Investors usually formulate their own trading plans intentionally or unintentionally with reference to the cost price, the highest and lowest prices that appear in historical trends, and the price of the consolidation range.
For example, during the upward trend, because it was anchored by the bottom price of 4 yuan, investors believed that the stock price was too expensive when it broke upward at 5 yuan, 6 yuan, etc. and missed the opportunity to rise to 9.6 yuan. When the stock price fell back to 6.5, because it was anchored by the high price of 9.6 yuan, investors thought the price was cheap and decided to buy.
availability bias
The longer the dissemination time of information, the wider the dissemination range, the higher the degree of consensus, and the easier it is to be obtained by investors, the lower the value of it may be. Investors need to uncover the more valuable information hidden beneath the surface, rather than the obvious surface.
For example, investors tend to think that good companies are good stocks. However, as a long-standing consensus, the information value of white horse stock labels has long been consumed by the market. Investment decisions require analysis of the current return-to-risk ratio. As good as Moutai, it may be a bad stock because it is overly popular and the potential risks are greater than the expected returns. If it is worse than ST, it may be because it is overly undervalued and the expected returns are greater than the potential risks, making it a good stock.
framing effect
Investors are easily influenced by the presentation of information and ignore the content of the information. Positive framing leads to positive conclusions, and investors are willing to take risks. Negative framing leads to negative conclusions and investors avoid risks.
The pain of a loss is greater than the satisfaction of a gain of the same amount. Therefore, in a loss scenario, investors place their hope on a rebound in stock prices and tend to adopt aggressive strategies to hold shares until they rise. In profit scenarios, they are more worried about profit retracements and tend to adopt conservative strategies to lock in profits.
confirmation bias
Once a belief is formed, investors demonstrate loyalty to it, interpret information in a way that confirms the belief, and ignore information that contradicts the belief.
For example, investors are always looking for reasons for the stocks they hold to rise: in a strong market, the stocks they hold are weaker than the market, and investors explain that this is the main force washing the market; in a weak market, the stocks they hold are synchronized with the market, and investors It was explained that this was a technical adjustment; in a weak market, the stocks held were stronger than the market. Investors explained that this was because there was a main force controlling the market...
illusion of control
Due to overconfidence due to lack of knowledge, misattribution, etc., investors tend to overestimate their abilities, mistakenly believe that they can predict future price trends, and take excessive risks without knowing it.
For example, investors believe that the medical industry will enter a period of accelerated development in the context of an aging population. After research, they buy a stock and ultimately obtain considerable returns. Investors attribute this to their strong stock picking skills, and the stock's rise is due to the surge in demand for anti-epidemic supplies caused by the new crown epidemic. When encountering losses, investors blame "bad mentality", "bad luck" and other factors.
In short, nothing requires constant companionship with human greed, fear and hope like investment. Although they cannot be completely objective and rational, investors still need to work hard to defeat themselves and guard against the risk of losing control with a cautious, abyss, and thin ice attitude. At the same time, investors do not have to worry too much about their own limitations. Choosing to invest means facing uncertainty and becoming a first-class loser. This makes you a first-class investor.