ZF Capital

Emotions get in the way of making good investment decisions. For example, your desire to feel good about yourself – seeking pride – causes you to sell your winners too soon. Trying to avoid regret causes you to hold your losers too long. The consequences are that you sell the stocks that perform well and keep the stocks that perform poorly. This hurts your return and causes you to pay higher taxes.

– John Nofsinger, Investment Madness

Ego is another problem. Ego can be devastating. I firmly believe that if you have an ego when you’re trading the markets, you will potentially give back what you’ve made. Ego will keep you in when you’re supposed to get out.

– John Nofsinger, Investment Madness

Avoiding the emotional pain of regret causes you to sell winners too soon and hold on to losers too long.

– John Nofsinger, Investment Madness

People have the tendency to believe that the accuracy of their forecasts increases with more information. This is the illusion of knowledge – that more information increases your knowledge about something and improves your decisions. However, this is not always the case – increased levels of information do not necessarily lead to greater knowledge. There are three reasons for this. First, some information does not help us make predictions and can even mislead us. Second, many people may not have the training, experience, or skills to interpret the information. And, finally, people tend to interpret new information as confirmation of their prior beliefs.

– John Nofsinger, Investment Madness