Money: You should avoid these 5 psychological pitfalls on the stock market



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To get an attractive return on their money, savers today need to invest in the stock market. As is well known, the basis for this is a broadly diversified portfolio, both in terms of industries and regionally. The easiest way to do this is with a monthly ETF savings plan, for example on the MSCI All Country World Index, which is already possible with small amounts.

If you also want to actively invest your money in individual values ​​yourself, you should consider a few points: valuation, market environment, but especially your own psyche. Because there are some psychological traps that investors fall into again and again – even long-term professional investors are not immune from them, but especially as a beginner one should pay attention to them. We show you five common mistakes that you should avoid on the psychological level.

Herd behavior

Just because many people make the same decision doesn’t have to be right. Many investors sometimes ignore what sounds logical at first. There is also a suitable, current case: “The recent Gamestop price turbulence was a good example of how herd behavior affects many investors,” says Kim Felix Fomm, investment expert from Raisin to “You can see that investors have made a lot of profit in a short period of time and want to be part of the hype.”

Investors quickly hide the dangers and do not listen when long-standing experts warn against jumping on the bandwagon. Instead, it is a mixture of greed and herd behavior that, despite all warnings, leads investors to take a lot of risk, as in this particular case.

This psychological trap has long been a well-known phenomenon that fraudsters also take advantage of. “This behavior enables market manipulation – in this case the so-called ‘Pump and Dump Scheme’. A few investors cheer a share with false analyzes and often criminal methods and sell as long as the hype about the value continues, ”explains Fomm.


Not only in the financial market do some people tend to overestimate themselves. That’s why investment expert Fomm also says: “Overconfidence is human and probably the biggest trap.” But it can be expensive on the stock market.

“The danger on the stock market is also to ascribe good decisions to oneself, but always to find external reasons for bad decisions,” explains Fomm. Means: If a share rises after buying it, you pat yourself on the shoulder because you have supposedly analyzed and known everything correctly. However, if an investment develops poorly, you can quickly find excuses about who or what is to blame. For example, the market misinterprets company figures.

An important piece of advice from Kim Felix Fomm in this context: “No matter how long you have been active in the stock market, it is always important to be self-critical.”

Loss aversion

But there are also mistakes when you try hard not to make losses. This is difficult to do on the stock exchange, but it is also due to the human psyche. “Daniel Kahneman’s experiments have shown time and again that a loss of 50 euros hurts investors more than they are happy about a profit of 50 euros,” says investment expert Fomm. “For this reason, some investors try to avoid losses at all costs – but this approach is also a mistake.”

No question: limiting losses is an important point when investing. But on the stock market, where the return is around seven percent per year with global diversification and a long-term investment horizon, it does not work without a certain volatility. “Short-term fluctuations are a part of the stock market. However, the longer the investment horizon, the lower the likelihood of realizing losses in the end, ”explains Fomm.

Postponing an investment because of the fear of losing money is a mistake. “There are always reasons not to invest. Statistically, the best time to get started is now, if you want to invest your money over the long term. The earlier you start, the better, ”says Fomm.

Confirmation failure

Every day there are numerous reports on many companies and markets on the stock exchange. How to filter and interpret them is one of the most difficult tasks in the financial market. However, one should definitely avoid making a mistake, says Fomm. “If you only perceive the news from the multitude of information that reinforce your own opinion and ignore all others, you no longer have an objective picture.”

If you are convinced of a stock, it doesn’t help just to read the positive analysis of the value to confirm yourself. This mistake was also seen in the Wall Street bets movement, says Fomm. “At Gamestop, many commentators and the media have warned that many investors will end up losing money. But they were ignored by many Gamestop investors as a kind of ‘Wall Street lobbyists’. “

Anchor effect

The anchor effect alludes to the fact that a certain number in our psyche is perceived as a comparison – and thus acts as an anchor. “Numbers as a reference point influence our proportionality without our being able to defend ourselves against it,” says Fomm. It also serves as a well-known sales strategy.

Let’s take a new television set as an example. If you go to an electronics store to do this, you may be familiar with the following process. You set yourself a budget of a maximum of 1,000 euros and tell the seller that. “If the consultant now shows the customer a high-end product and says that this television costs 6,000 euros, for example, but there is one that is almost as good, but only costs 1,500 euros, this price automatically appears to us to be reasonable”, says Fomm.

The price of 6,000 euros thus shifts the tolerance of what we are willing to spend. It is similar with shares: “A share is quoted at 100 euros and an investor is considering buying it. Before he buys it, the share plummets to 80 euros – suddenly it seems cheap to the investor because it just cost 100 euros and he was about to buy it. ”In this case, it’s all about the power of numbers.


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