Read on Twitter
Twitter is the best global platform to experience and study a huge array behavioural finance biases, because they are on display in such a prevalent manner!
Which behavioural finance pitfalls can you identify with? Here are some common examples /1
Which behavioural finance pitfalls can you identify with? Here are some common examples /1
Overconfidence/ self attribution bias- (âstock x is up 50% in 3 days, I was pounding the table on this last week, kudos to everyone taking my adviceâ, inserts meme)
Herd Mentality- (popular tweeter: âI like this stockâ....Herd: ânever heard of this one, I like it tooâ) /2
Illusion of Control bias- (âmy newsletter made a stock pop 20%â)...unlikely given institutional flows are 85% on said stock and I doubt institutions are reading a twitter newsletter /3
Anchoring bias- (âstock X is 30x sales, but I like the company, wait a minute stock X was 50x sales a few months ago, itâs so cheap nowâ)...... no consideration to the fact that the historic 3y average ev/sales is 12x
Framing bias - (âfinance professional with 50 followers posted financial analysis on a stock that I donât understand, Iâll ignore. Wait Mr. X whos new to investing but has 10k followers just said he loves this stock but he doesnât confuse me with complicated analysis, BUYâ) /5
Narrative fallacy- (âI use stock X product all the time, this product has massive demand, I expect a big quarterâ) /6
Outcome bias- âwow investor X made 300% in 2020, Iâll copy him/herâ (no consideration given to their process that led to those returns, do they themselves copy others, do they take excessive risk, how did they do in a normal market?) /7
Cognitive Dissonance bias - (âstock X lost a significant customer today, damn the stock is down 10% today, oh itâs in the price now, it will be back to highs soonâ)....tendency to ignore newly acquired info as conflicts with previous positive views /8
Recency bias- (âgrowth stock X is up 200% in 2020, itâs still growing at 40% so it will continue to rallyâ ...no consideration given to normalised returns in years before 2020 or valuation underpinning 40% future growth, only consideration is price action /9
Hindsight bias- (stock X falls 20%.....âsure stock X was due a pullback, it was trading way above 200ma, it was always gonna happenâ...... so did u sell & profit? âNo I didnât, but it was obvious the pullback was gonna happen 
â) /10
Confirmation bias - (âmy stock is up 20% this week; hereâs this article and that article to confirm my beliefs that I am rightâ...same stock drops 20% a few weeks later, but no articles are forthcoming from investor) /11
Every investor is guilty of psychological biases.
Identifying which biases you display in your investment process, can help detect excessive or undue risk you are taking & can significantly improve your investment process by removal of such psychological negative tendencies. /END
Identifying which biases you display in your investment process, can help detect excessive or undue risk you are taking & can significantly improve your investment process by removal of such psychological negative tendencies. /END
