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Look out for these traits – and try to minimise your tendency toward them:
Conservatism
Investors are resistant to changing an opinion, even in the presence of pertinent new information. So, when profits turn out to be unexpectedly high they initially underreact.
They do not revise their earnings estimates enough to reflect the new information and so one positive earnings surprise is followed by another positive earnings surprise. This trait may help explain earnings momentum among other market phenomena.
Narrow framing
Investors’ perceptions of risk and return are highly influenced by how the decision problems are framed. Many investors ‘narrow frame’ rather than look at the broader picture.
For example, an investor aged under 35 saving for retirement in 30 years pays too much attention to short-term gains and losses on a portfolio.
Another investor focuses too much on the price movements of a single share, although it represents only a small proportion of total wealth.This kind of narrow framing can lead to an over-estimation of the risk investors are taking, especially if they are highly risk averse.
The more narrow the investor’s focus, the more likely he is to see losses.
If the investor took a broad frame he would realise that despite short-ter………………..
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