Episode 21 - Don’t let your behavioral biases spoil your investment journey

Money Konnect

In life, we have many experiences and interact with lots of people. These experiences and interactions can often impact our behaviour and influence our ability to make the right decisions. This is true for life as well as for investing. However, by being aware of these behavioural biases and simply following a few key steps, you can reduce the impact of these biases on your investment journey. In this Edelweiss Money Konnect podcast episode, Radhika Gupta, MD & CEO of Edelweiss AMC, identifies some of the major behavioural biases and offers suggestions on how to deal with them.

Key takeaways

1. Anchoring: During the course of our life, we learn and unlearn many things. However, many people tend to stay anchored to some of the things that they have learnt or experienced and base all their future expectations on these few learnings or experiences. For example, framing expectations of future returns by looking at past returns.

2. Loss aversion: Most people feel regret after a bad outcome. Moreover, the feeling of regret is often greater than the feeling of joy you get after a favourable outcome. For example, the loss of Rs 2 can feel bigger than a gain of Rs. 20. The fear of loss not only keeps us away from making good investments it also stops us from exiting sub-par investments.

3. Choice paralysis: Today, we are spoilt for choice, whether it is about clothes, shoes, or investments. At the same time, we also live in an era of information overload. Just like they say too much of a good thing can be a bad thing, the same way too much choice and information can make investment decisions unnecessarily difficult

4. Recency bias: We all remember the recent past and tend to forget the entire past. However, by selectively remembering only a part of the story, especially the part which you have only recently read or experienced, will impact your ability to make the right investment decisions.

5. Herd mentality: We all love following what other people are doing. As a matter of fact, this is exactly how trends or fads happen. However, we must always remember that the power of the crowd has created many bubbles in the past.

You can learn more of these interesting principles on the Money Konnect Podcasts available on the Edelweiss Mutual Fund website, Spotify, Google Podcasts, and Apple Podcast. We hope you enjoyed this podcast and will tune in to listen to more such podcasts on investing nuggets.