Lesson 04 — Behavioral Mistakes Investors Make
Week 02 · Lesson 4 of 7 · Week 02 — Foundations: Thinking Like a Long-term Investor
Markets are reasonably efficient. What isn't efficient is human behaviour. "Market samajh lo — apne aap ko samajhna mushkil hai." What: Giving too much weigh...
Your biggest enemy is yourself
Markets are reasonably efficient. What isn't efficient is human behaviour.
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"Market samajh lo — apne aap ko samajhna mushkil hai."
Top 5 biases that hurt Indian retail investors
1. Recency Bias
What: Giving too much weight to recent events.
Example: "Nifty 2 saal se upar ja raha hai, toh hamesha jaayega" → buying at peak.
2. Herd Mentality
What: Following the crowd without analysis.
Example: Buying a stock because "sab log le rahe hain" or an influencer recommended it.
3. Loss Aversion
What: Holding losers too long and selling winners too early.
Example: Holding a stock down 50% hoping it'll recover, but selling a 20% gainer because "profit book kar lo".
4. Anchoring
What: Fixating on a past price.
Example: "Ye stock ₹500 pe tha, ab ₹300 pe hai — sasta hai!" (But maybe the business deteriorated.)
5. Overconfidence
What: Thinking you know more than you do.
Example: Concentrated bets without proper analysis. "Main toh expert hoon."
How to protect yourself
| Bias | Antidote |
|---|---|
| Recency | Look at 10-year data, not 10-day data |
| Herd | Always do your own analysis first |
| Loss aversion | Set a thesis — sell when thesis breaks, not when price drops |
| Anchoring | Focus on current valuation vs fundamentals, not past price |
| Overconfidence | Maintain a "mistake journal" |
The Checklist
Before every buy/sell decision, ask: "Am I reacting to price or business?"
Key takeaway
Awareness of biases won't eliminate them, but it reduces their damage. "Pehchaan lo, toh bachao."
Apply it
Think about your last stock purchase. Which bias(es) influenced it? Write it down.