We need to be pendulum-conscious - the most important thing to invest series 8

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“The Most Important Thing to Invest” was evaluated by Buffett as “a rare and useful book”, and he read it twice himself. This book condenses the author's own investment ideas and personal experience over the years, incorporates the opinions of several other well-known investment experts, and summarizes the most important investment issues through reverse investment. This book is of great practical significance. You must be patient when investing. If you don't want to eat hot tofu in a hurry, you should always be aware of risk prevention. I believe investors will benefit greatly after reading this book.

We need to be pendulum-conscious - the most important thing to invest series 8

Inefficiency — mispricing, misperception, and mistakes made by others — creates opportunities for outstanding performance. Why does the error occur? Because investing is a human act, and humans are governed by psychology and emotions. Many people have the intellect needed to analyze data, yet few are able to see things more deeply and endure significant psychological effects. Many people come to similar cognitive conclusions through analysis, but because of their different psychological effects, they take different actions based on these conclusions. The biggest investment mistakes are not due to informational or analytical factors, but to psychological factors. The investment mentality includes many independent factors, which often lead to bad decisions.

The first type is the desire for money, especially when this desire evolves into greed. Most people invest for the purpose of making money, and there is nothing wrong with trying to make money. In fact, the desire for profit is one of the important factors driving the operation of the market and the economy as a whole. Danger arises when desire becomes greed. Greed is a force so powerful that it can overcome common sense, risk aversion, prudence, logic, painful memories of past lessons, determination, fear, and everything else that can keep investors away from trouble. Greed often drives investors to join the profit-seeking crowd and ultimately pay the price.

The second type is fear, which is a psychological factor. Fear, like greed, means excessive. Therefore, fear is like panic. Fear is an excessive worry that prevents investors from taking the positive activities they should have taken.

The third type is the tendency for people to easily abandon logic, history, and norms. This trend makes people open to any suggestions that can make them rich. Self-deceiving a person is easiest because a person always believes what he wants. However, the purpose of investing is serious, and no joke is allowed. We must persevere and be wary of what doesn't work in reality. Simply put, the investment process requires a lot of doubt, and insufficient doubt can lead to investment losses.

Investors are often driven by greed and can easily abandon or ignore past lessons. Extremely short financial memories make market participants unaware of the recurrence and inevitability of these models. When a market, an individual, or an investment technology reaps high short-term returns, it usually attracts excessive admiration. No strategy can deliver high returns without risk, no one knows all the answers; we're just normal people. Markets are constantly changing, and like anything else, opportunities to earn extra profits decline over time.

The fourth factor is crowd mentality. We should have reservations about the correctness of the group consensus. The pressure of the crowd and the desire to make money make people give up their independence and skepticism, leave risk aversion behind, and instead believe in meaningless things.

The fifth factor is jealousy. No matter how strong the negative power of greed is, it also motivates people to be proactive. The negative effects are far superior when compared to others. We all have a tendency to compare ourselves to others, and this tendency can adversely affect an investment process that is inherently constructive and analytical.

The sixth factor is conceit.

Investors often ignore common sense in the bubble. They overlook many facts. Not all companies will succeed. The stock market has a long turbulent process, making it difficult to make a profit by providing free services, and the stocks of loss-making companies that are priced at high market sales rates have huge risks. The key to avoiding loss is refusing to follow suit when greed and human error cause positive factors to be overestimated and negative factors overlooked.