Stay calm and keep investing
When do I take profit?
Why do I hang on to losses?
Why do I follow the crowd to buy $GameStop(GME.US$
Before we talk about how to attain a proper psychological mindset, we should look what is really playing with our brain.
The experts called it Behavioural Finance. Investment theories tend to assume that people are rational decision makers. Reality is often very different. Decision making is influenced by emotion, biases, social factors and cognitive biases. We are not always rational in making decision, and hence the decisions that we made can be flawed.
Here are 3 biases that affect many investors, including me:
1. Anchoring biases.
Anchoring bias is the tendency of people to use arbitrary numbers as a reference point on which to base opinions.
This happen a lot in stock investment. For example. You bought $DBS Group Holdings(D05.SG$ in 2020 at $18, and this $18 forms the anchoring. You find it hard to buy more shares when DBS is now trading at $34.
2. Herding
Herd behavior happens when we follow others rather than making our own decisions based on data. We follow one another like sheeps.
3. Loss adversion
Loss aversion is a bias toward avoiding losses over seeking gains. This explains why we may take profit with a small gain (10%) and held on to our losers. (which has changed their fundamentals).
Some people may even avoid investing altogether and leave the money in the bank although the bank is giving very low interest.
It is important to know these biases so that we can know what affect us to make rational decision and avoid investing mistake.
We can also do the following to improve our trading/investing mindset:
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Before you made an investment, be very clear whether it is a long term investment or a swing trade. If it is a swing trade, set clear price target to take profit or stop loss.
If it is a long term investment, focus on the business and not the short term noise. Once you have done your homework, stick to your plan.
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Adopt a Dollar Cost Averaging (DCA) method. In this way, we can avoid anchoring. DCA can be done for stocks or investing in indexes. $SPDR S&P 500 ETF(SPY.US$
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Be clear of your investment style and strategy. This help to minimize FOMO and herding.
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Only invest the money that you do not need in the next 5 years. In this way, we can avoid panic selling when the market tanks.
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Think of market volatility as a fee.
Morgan Housel stated this in his book - Psychology of Money
“It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.”
Lastly, when you feel that you cannot make clear decision, close your trading app. Go for a run or grab a beer and come back when you can think clearer.
It is definitely not easy to train our mind and it is a long journey. Thankfully we can share our thoughts with liked minded people in the Moomoo community.
@Investing with moomoo @Meta Moo @moomoo Singapore
Why do I hang on to losses?
Why do I follow the crowd to buy $GameStop(GME.US$
Before we talk about how to attain a proper psychological mindset, we should look what is really playing with our brain.
The experts called it Behavioural Finance. Investment theories tend to assume that people are rational decision makers. Reality is often very different. Decision making is influenced by emotion, biases, social factors and cognitive biases. We are not always rational in making decision, and hence the decisions that we made can be flawed.
Here are 3 biases that affect many investors, including me:
1. Anchoring biases.
Anchoring bias is the tendency of people to use arbitrary numbers as a reference point on which to base opinions.
This happen a lot in stock investment. For example. You bought $DBS Group Holdings(D05.SG$ in 2020 at $18, and this $18 forms the anchoring. You find it hard to buy more shares when DBS is now trading at $34.
2. Herding
Herd behavior happens when we follow others rather than making our own decisions based on data. We follow one another like sheeps.
3. Loss adversion
Loss aversion is a bias toward avoiding losses over seeking gains. This explains why we may take profit with a small gain (10%) and held on to our losers. (which has changed their fundamentals).
Some people may even avoid investing altogether and leave the money in the bank although the bank is giving very low interest.
It is important to know these biases so that we can know what affect us to make rational decision and avoid investing mistake.
We can also do the following to improve our trading/investing mindset:
If it is a long term investment, focus on the business and not the short term noise. Once you have done your homework, stick to your plan.
Morgan Housel stated this in his book - Psychology of Money
“It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.”
Lastly, when you feel that you cannot make clear decision, close your trading app. Go for a run or grab a beer and come back when you can think clearer.
It is definitely not easy to train our mind and it is a long journey. Thankfully we can share our thoughts with liked minded people in the Moomoo community.
@Investing with moomoo @Meta Moo @moomoo Singapore
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Crispyy : Couldn’t agree more especially point 1.
NANA123 : DCA is important
keep calm and don't trade on emotion
Panda2102OP :
Panda2102OP : Calling for @Mars Mooo
Panda2102OP Crispyy: I struggle with that a lot.
Mars Mooo Panda2102OP:
HopeAlways : Congratulations to our new Mentor Moo.
We have all witnessed your growth here and all the best for your investing journey in the brand new year. 
Panda2102OP HopeAlways: Thank you very much for your encouragement senpai. I was wondering why have not heard from you for a while and here you are!
Yes, let’s hope that 2022 will be a good year for all of us..
102576279 : Very insightful! Like to hear your take on S&P 500 ETF. Looking to buy CSPX. Is it the preferred one for accumulating dividends? Since Dividends are not distributed, do we look at CSPX as a stock for capital gain? So we just save every Quarter into CSPX (i.e buying 4 securities every 3 months) and say, 10 years later when we planning to retire then we sell and put the money into dividends distributing ETF e.g. VOO and just live off our dividends. Is this the right Approach?
Panda2102OP 102576279: Hi. First thing to consider is your tax status. S&P 500 such as VOO has a 30% withholding taxes for Singaporean. If you are after dividend, there are many other stocks that give good dividends.
CSPX has no withholding taxes. I would look at it as a capital accumulation index / passive investing than for dividend. DCA into it is a good plan.
These are my views and not financial advice. Pls do your due diligence. Cheers
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