26 Apr How 1 Common Mistake can Affect Investment Performance
You must have confidence to be able to achieve your most ambitious goals. No one ever succeeded by limiting themselves. This is especially true in the world of investing. Every prudent investor should know how to trust him or herself to implement financial strategies effectively and boost investment performance.
However, as human beings, we tend to form idealistic pictures of ourselves. Positivity has many proven benefits. But, if you only see your positive attributes, there will be negative consequences. If you can’t recognize your own mistakes, others may find you difficult to work with. You miss out on the growth opportunities that come with self-evaluation if you reach conclusions that don’t address the varied aspects of a situation. This why you should always be assessing yourself objectively. Try to determine whether you are being overconfident.
The tendency of your brain to avoid recognizing your flaws is a form of self-protection. You, subconsciously, would rather not experience the discomfort of self-criticism and the effort of self-correction. In social psychology, this cognitive phenomenon is known as ‘self-attribution bias’. This is the tendency to credit positive outcomes to your own character. This means attributing negative outcomes to external factors – clearly a one-sided approach.
How does this bias affect investors?
Self-attribution bias causes investors to become overconfident and make miscalculated investment decisions. In some cases, investors hold onto a certain investment simply because they are emotionally attached to it. This psychological principle also comes into play during sudden declines in the stock market. Many investors fail to see the big picture and instead look for something or someone to blame, which is counterproductive. When these things happen, many investors lose their sense of personal accountability, a necessary factor for success.
How will I correct this if I find myself overconfident?
Not to worry, self-attribution is a bias that you can resolve easily if you are mindful. With your finances, having an extensive knowledge of how the investment landscape behaves is essential to your success. Learn what works and be open to new strategies.This way, you can familiarize yourself with trends and to make sure that your strategies work long-term. From time to time, unavoidable undesirable outcomes will arise. Learn from these experiences by being mature enough to study them from a balanced perspective. These tips may sound simple, but they take time and effort to implement. Therefore, seek advice from an experienced financial expert to bring much-needed experience, knowledge, and perspective to your portfolio.
Ultimately, it is all about your attitude and perspective. Avoid being distracted by a single area. Keep your eye on the big picture. Avoid fault-finding and blaming when you encounter negative events. Instead, take the opportunity to learn new things and better yourself.
Do you want to know more about self-attribution bias in investing and how not to fall for it?
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