By Rajendra
Sep 4,, 2022
There are no fixed principles and rules that may fit financial plans for different investors.
This also serves as a basis -how stock markets operate, where two participants—a buyer and a seller— take opposing positions on the same stock.
One of the investors is selling the stock, while the other investor is buying the stock in anticipation of future appreciation.
The term is derived from sheep herd, wherein each of the sheep follows what others in the group are doing.
Herd investing is the practice of purchasing stocks or mutual fund schemes based on the actions of other investors.
Investment decisions are based on wide market consensus rather than the fundamental analysis of the investors.
It refers to the bias in investing when investors look for psychological support for their investment opinions.
If they have a strong opinion on certain stocks, mutual fund plans, or markets, they are likely to stick with it.
It is also possible to have the right view, yet even this opinion may need to be revised and reexamined if the situation changes.
Investors frequently have a tendency to seek external validation of their analysis.
As a result, they can prefer investing in specific sectors or firms based on their knowledge & study.
Since the investments may be focused on specific sectors, themes, etc., such an investing bias results in reduced portfolio diversification.
This refers to the investors' tendency to stay onto the stocks that are losing money while taking profits on their winning strategies.
As a result, gains are realized more quickly, and the loss-making schemes are retained for a longer period of time.
It refers to the fact that investors base his investing decisions on a range of emotions, fear, greed, wrath, excitement, etc.
Investment biases can result in a number of poor investment choices, which one should try to avoid.
As a result, behavioral investing must be the main focus for a positive investing experience.