Behavioural biases to avoid amid COVID-19 crisis

Behavioural biases often lead to not so good investment decisions. This further leads to the wealth destruction of investors. Being humans, our decisions are driven by emotions. Hence, it is important to understand what are those emotions or behavioural biases that lead us towards wrong decisions. In this article, we have listed a few behavioural biases that you should avoid during the ongoing pandemic situation to avoid wealth erosion.

Overconfidence

When people gain experience, they usually get carried away by the same and then, they ought to feel that they have mastered the entire concept and process of investing. On top of that, they even move ahead to take risky bets and lose all the gains made out of serious investing. This emotion is nothing but a mere overconfidence. Such mistakes do happen during volatile times. Hence, to avoid it, do have a clear purpose of investing and get your risk tolerance level assessed. This will help you to stay focussed and not get lured with the upside jump of the market.

Loss aversion

People tend to feel more pain of loss than joy of gain. Hence, loss aversion makes people recollect the previous losses made by them and that leads to a thought of avoiding investing in the current market situation. Here, their focus is mainly on not incurring losses, even if it means losing on the potential gains. Again, having a financial plan in place and investing based on the same would help you to be more comfortable.

Confirmation bias

People often prefer things that justify their opinions. Say for instance, they prefer those news channels that represent their own views on politics, stock markets, etc. and avoid those that feature different opinions. People act similar when it comes to investing. An investor might have his or her own belief with respect to market conditions but people eventually tend to rely on those information sources that usually confirm their beliefs.