Beware of your own investing traps!

Behavioral precautions for investors

Before riding the market horse in the financial Wild West,
better read this checklist of behavioral traps and mental biases
- related to flawed observation, understanding or emotion -
that are awaiting you.

sous danger What investors should be wary of.

Try not to break your neck when riding the market horse!


The stock market (the main focus of this article, but of course investing
is a broader domain), can make you
a useful and valiant contributor to
the economic game, a foot-soldier of the financial war.
You can even draw some profit from it.

Also, as a substitute to the Wild West or to your favorite video game, it
is an
exciting (and educational) place,
=> This might be its main trap
if you are naive, overbuoyant or paranoid,
      or just don't watch your back !


This is a practical checklist of
behavioral traps to avoid and precautions to take

when investing.
In complement to the list of investment biases below,
don't hesitate to make your own one of what might
affect your observation, understanding or emotion,
by a
dding your own pearls of wisdom.
The content is drawn from several more detailed articles:
1 - Decision
      & action
Avoid inertia (status quo bias) and indecision as
well as
hyperactivity.
Adjust to crucial new situations and information
3 - Anchoring /
     focusing
Don't be anchored on past references / values, 
or stuck in commitments and endowments
4 - Framing,
        heuristic
Avoid over-simplified rules, partial data, narrow
interpretations. Look instead
at the full picture
5 - Fallacy,
      attention,

       (mis)perception
Revise erroneous knowledge and beliefs:
wonder if they are consistent with facts.
Avoid
automaticity

6 - Attitude
   - Aversion
Avoid biased expectations of pain (aversion) /
pleasure
  (overoptimism) when
deciding.
See below "emotions".

Beware also of the specific loss aversion.
7 - Emotion


Avoida primacy of emotions: i.e. greed (hope),
fear, love (trust), over reason. As emotions are
a key motivator, they should be controlled but
not to the extent to eliminate them altogether.
8 - Mimicry,
     manipulation
Be wary of biased social influences /
contagions on your decisions.
9 - Magical
     thinking
Be wary of illusive expectations and of the
"wish to believe"
10 - Pride
Don't let your ego dominate you (overconfidence)
Have clear and consistent priorities and the
needed discipline.
12 - Tilting
Try to use (or protect from) market anomalies
(overpricing / underpricing, anomalous returns)

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M.a.j. / updated : 11 July 2015
All my ex-knols / Tous mes ex knols 
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