Human Emotion and Biases

Emotions and Investment

Common Mistakes Investors Make

Far and away, the biggest detractors of successful investing are emotional mistakes. Unfortunately, we see this frequently.

When an investor makes a concentrated “bet” into a specific investment, he often becomes emotionally attached to the investment. This eventually puts him in a no-win emotional position. If he sells and the investment continues to rise, he feels the pain of loss from missing more of the gain, even though he sold at a profit. If he hangs on and the investment declines, he feels the pain of loss because he could have sold at a gain.

What happens when you invest passively not emotionally?

In contrast, when someone invests in a broad-based, diversified, passive investment, he tends not to fall in love like he would with an individual company or a specific manager. As a result, he tends to make better decisions and feel much less regret. At Mills Wealth Advisors, we feel that low-cost asset class funds are the best investment tools for most investors’ core portfolios.