Four Ways You Can Become A Better Investor
Folklore can be a system of common beliefs rooted in our biases that dictate our behavior. State Street’s Center for applied research took a dip into the pool of folklore for investors. One of the factors was knowledge which has a huge impact on how well we invest. For an individual investor we often think we know what’s best because we look to what the market is doing and when things go well we take credit for it but when things go bad we blame it on the market. The market is plugged into group think so what the market is doing might not yield you the best outcome for your investing goals.
See how your perceived knowledge and group think shape how you trade.
The folklore of knowledge relates to a subconscious faith in what we think we know. For example, professional portfolio managers tend to take credit for successful investments and blame the duds on external factors—the market, say, or incompetent company executives. Individual investors are merely overconfident. Nearly two-thirds of those polled by center researchers rated their level of financial sophistication as advanced, but they scored an average of 61%, or barely above failing, on a financial literacy test.
Besides unplugging from group think and going with how the market is performing the best way to become an awesome investor is to establish a set of rules. Your rules should help you with your current strategy. If you are a long term investor rely on financials to make a decision instead of charts. Even just making the rule of no day trading (one of mine) has saved me a ton of money on bad investments.
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.