Terms

Investor Psychology

Investor Psychology

Investor Psychology refers to understanding the individual investor’s shortcomings in how they perceive the markets. It combines the theories from the field of psychology and applies them to the actions of individuals in trading and other financial applications. It also explains why and how investors act and to analyze how that behavior affects the market, and why they are in conflict with the efficient market theory. It tackles investors’ overconfidence, loss aversion, portfolio construction and diversification, misuse of information, and cultural differences.

  • One of the biggest battles investors will ever have is with their own psychology
  • Attitude can help improve investment and earning performance
  • A sound investing philosophy, strategy and action plan is required to be successful
  • Investors who are chaotic and don't have a strategy won't do well
  • Investors must work to get rid of counterproductive attitudes, approaches and methods