Behavioral Finance - Can Profit Penny Prophet property?

Recently, there has been a new development in the field of finance that I find worthy of note. With all the things that are studied and analyzed today, financial economists have worked with behavioral psychologists to create the new field of "behavioral finance".

In studies of college students, the questionnaires are provided asking for discussion on various skills and abilities. The idea is to get an idea of ​​how people see themselves in relation to their "fellow middle class." It is interesting to note that the vast majority are considered above average in their opinion of their abilities. This applies across the board, even in areas that you would think that would be difficult to deceive as athletics.

The point I want to do here is that people generally feel they are above average. So, how does this relate to investing? The research shows that people are not always rational. When someone makes a successful investment, can easily become over-confident. In a bull market like the one at the end of 1999, with technology stocks soaring, it was almost routine to double your money in an investment. Perhaps the proper time or just plain luck could be interpreted or confused with the skilled trade.

People tend to think they have more control over things and then actually do. Remember, the market can do what he wants at any time. There is no reliable way to predict the future movements of the market. Try to keep your grip on reality stops, your feet should remain planted on the ground. Patterns in the stock market will not last forever. Any trend that we see, once it has been discovered eventually be exploited.

To keep yourself from making mistakes that can result from being too confident, we use the analogy amateur tennis. The player who does not try to do very often has the advantage. Do not get beat by over-hit or try to be too fancy. Keep errors not forced downward and constant return the ball.

If you use this same philosophy with your chosen stock market, which will take you far along the road to achieving your long term goals of financial investment ....