8 powerful steps to get rid of behavioral finance bias | Author: Kalpen Patel | The Capital | June 2021
Hi everyone, thank you for coming back to my blog. I hope you found my last blog interesting and useful, in which I introduced “8 dangerous reasons to avoid herd behavior when investing‘.
In this blog, I will describe the steps you can take to get rid of behavioral financial bias in order to make better and more beneficial investment decisions.
Behavioral financial biases are untrue preconceived notions about current or potential investments that can severely limit your investment success. Recognizing that you have these prejudices is not easy, and changing your beliefs can be a challenging task.
However, it pays to learn to put prejudices aside when making investment decisions. In this way, your investment choices can be based on effective research and an understanding of the true risks of investment.
By removing the beliefs that limit you, use the following steps to make informed investment decisions:
Recognizing the problem is always the first and most necessary step!
If you want to know a good way to achieve great success, please try not to repeat your mistakes.
· Avoid making the same mistakes over and over again by fully understanding and analyzing their occurrence.
· We tend to act in the same way under the same circumstances until we make a concerted effort to change.
Consider what the prejudice has cost you in the past. If you continue to operate under the same beliefs, what results might you have?
· Understand the negative consequences of allowing behavioral financial bias to continue to influence your decision.
See what you need to change and what you need to do to prevent the same error from happening again.
· Develop a plan that will allow you to address your natural tendencies.
· These tendencies are only the result of human nature.
· Be diligent in order to do better next time.
Develop a new procedure to eliminate your prejudices.
· Ask a series of questions to let you know if you are affected by prejudice (questions are a good way to change your attention).
· For example, if you are challenged by herd behavior (always following the crowd), ask yourself why you are interested in a new investment. Do you really understand investment? If it is not so popular, would you still invest?
You have considered the negative consequences of maintaining prejudice, and now consider the benefits of changing your views.
· If the benefits of the change are obvious, the new behavior is easier to implement.
Diligence is the key! Always review your decisions to see how they affect your investment.
· Behaviors and thinking patterns may take time to change, and some may be more difficult to stop than others.
· Monitor yourself and you will overcome these prejudices.
Constantly trying to overcome these prejudices is a good way to prevent you from going backwards. Ask yourself, “How can I do better next time?”
· Remember, everything you do can be better.
· Avoid being too easy to be satisfied.