Psychological Traps in Investment Analysis
Investment analysts can fall into several psychological traps (and should strive to avoid doing so.)
Anchoring refers to giving disproportionate weight to the first information received about a topic.
Status quo bias is the tendency to perpetuate recent observations in forecasts.
Confirming evidence is the tendency to give more weight to information that supports existing or preferred points of view than to information that contradicts the preferred view.
Overconfidence is having too much faith in the accuracy of one’s forecasts.
Recallability is when forecasts are overly influenced by events that left a strong impression on the forecaster’s memory.
For more information, see all articles on: Asset Allocation, Behavioral Finance, FInancial Planning, Institutional Investing, Portfolio Management See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
