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The Bad Habits Of Investors

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Becoming a skillful investor requires one to hone a diverse array of knowledge and strategies. But oftentime these faculties develop into patterns that end up working against the investor.

Ben Carlson, author of the wealth management blog A Wealth of Common Sense, came on to Benzings's PreMarket Prep morning show to talk about some of the counterproductive patterns and bad habits investors tend to fall into. His assessment? "There are a lot of them, as human beings are an irrational bunch."

In particular, Carlson pointed to the skittishness investors show during big market moves. "One of the biggest ones is this idea of the disposition effect, which is that investors like to hold on to their losers and get rid of there winners. It's easy to assume that simply because stocks are at new all time highs, that means they are going to crash immediately."

While these impulses aren't irrational, Carlson said many investors assume consistent patterns based on the most dramatic examples, like the 2008 crash. "We've had close to 120 all-time highs this decade alone. Every time it happens, people tend remember what happened the last time stocks fell and they forget that over time stocks tend to rise."

Carlson's broader insight into investor habits is based on assumptions about what any given circumstance will mean for the market. "It seems like everyone is so sure of what the outcomes are going to be, but I don't think it's ever that easy in the markets."

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8-9 ET here, or catch the podcast here.

Posted-In: Education Markets Media Interview

 

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