Notes

Why do investors behave as they do? Investor be￾haviour often deviates from logic and reason.
Emotional processes, mental mistakes, and in￾dividual personality traits complicate investment decisions.
Thus, investing is more than just analysing numbers and
making decisions to buy and sell various assets and securi￾ties. A large part of investing involves individual behav￾iour. Ignoring or failing to grasp this concept can have a
detrimental influence on portfolio performance.
Behavioural biases in investing encompass many types.
For example, cognitive biases refer to tendencies to think
and act in certain ways. A cognitive bias can be viewed as
a rule of thumb or heuristic, which can lead to systematic
deviations from a standard of rationality or good judgment.
Some controversy still exists about whether some of these
biases are truly irrational or whether they result in useful
attitudes or behaviour. Other biases are more emotional
in nature. An emotional bias is one that results in taking
action based on feelings instead of facts. Given that some
overlap exists between cognitive and emotional biases, we
simply call them behavioural biases. An important aspect
of avoiding such biases is to become aware of them. Thus,
by avoiding behavioural biases investors can more readily
reach impartial decisions based on available data and logi￾cal processes.
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