1 Investment Mistake to Avoid in the Stock Market

For most people, investing is simply about making money in the stock market.

But, avoiding losses can be just as important as making gains. If we can reduce the frequency and severity of our investing mistakes, we may just set the stage for us to generate good returns in the stock market.

Mistakes can come in many forms. The hardest ones to avoid may be psychological in nature.

Confirmation bias

Over time, we may come to favor some companies over others. When we do so, we may become susceptible to a psychological mistake commonly referred to as the confirmation bias.

When we’re under the spell of this bias, we may actively seek information that only agrees with our investment thesis and shun other information which does not conform to what we believe.

In this way, confirmation bias can easily cause you to underestimate risks that may threaten your investments.

Overcoming confirmation bias was a big reason why I took up the challenge to write a bear thesis about Vicom Ltd (SGX: V01) earlier this year. When I wrote the bear case on the company, I was already an owner of Vicom stock (I still am). But, I did not want to shy away from learning about possible threats or limitations that the company may have. After all, no company or business is perfect.

A Fool’s take

Some mistakes can be obvious, and some may not be as obvious.

Confirmation bias would belong to the latter group. But if we can be aware of this bias, we could save ourselves from mistakes in the future that may have been avoidable.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Vicom Limited.