Investing for Beginners , investing

Investment psychology gains momentum in contemporary business world

Many individuals make rational investment decisions, but others are swayed by their emotions, serving as clear-cut illustration of just how the mindset and behavior can affect finances, and this is an important aspect governing business today, called investment psychology. In what ways do attitude and behavior when investing lead to financial success or doom?  Note some red flags of investment psychology that may signal if an investor is prone to falling into traps and incurring frequent losses or financial failure. Some of these are being overconfident, greedy, or being too emotionally attached to investments.  If you happen to exhibit any of these characteristics when investing, it can be problematic and can backfire on you.

Even the most money-savvy individual may tend to keep mentally accounting for gains and losses when investing, and there’s the tendency to create a personal relationship with their investments, such as stocks. Hence, even if it’s a losing proposition, people still hang on to their stocks rather than selling and cutting losses. That’s the negative side of investment psychology. Human beings usually have the fight or flight mechanism, and during highly stressful situations or moments that signal people that there’s imminent danger, most individuals flee. In the business world, this makes investors lose money as a result of short-sighted vision. The bottom-line: investment psychology definitely plays a big role in making crucial decisions or investing, especially during trying circumstances. 

Investment psychology is important because it can help people realize that the emotional choices they make when investing must be balanced by rational thinking.  Investment psychology can be illustrated by looking at the different personality types of investors. There are confident and astute investors, there are those who tend to be anxious at the slightest sign of turbulence or instability, and there are careful investors who see to it that deals provide financial security for the future. On the other hand, there are the impulsive investors, and worry wart investors, as well as those who maintain a balanced approach and only assume moderate risks when investing. As investment psychology gains impetus and catches the attention of business leaders, companies get to devise ways to protect their business, including curbing rash investment decision-making.