In my previous article, I have described some of our thought process and mind sets when we are buying or selling a stock. We discussed our fear of losing, our cravings to be liked and our need to act now.
My intention in this article is to continue to explore the key thoughts that go through our minds when making a purchase or sell decision, and the key questions that we should ask ourselves but seldom do.
As highlighted in the previous article, throughout our life time we are driven by several psychological factors that may explain why we are not making the right decisions when it comes to buying and selling stocks. In this article, I will expand on the need to be liked factor and will introduce a new behavioral factor that affect our decision process, our tendency to be overconfident, and our need to comply with our previous commitments.
Let’s explore more about our need to be liked.
To be liked or not to be liked that is the question
There is a good reason why we are conditioned and almost addicted to the idea of being liked and, furthermore, why we are fearful of not being liked. Remember your school days, who did you want to be? Did you want to be the kid that was the most popular or the kid that no one would speak with? Did you want to come to the parties on your own or with other kids? How did you like on your school annual trip to sit next to the teacher because no one else wanted to sit next to you?
So, why do we want to be liked? The simple answer is that usually life works much better for us when we are liked versus when we are not liked. Since our early days on this planet, people that used to get along and be liked by other people usually fared much better than the people that were not liked. In our early days taking care of each other was a must in order to survive, and who likes to take care of someone that they disdain? It is very simple, for most of us being liked means having more opportunities to have good friends, better work and in general to have happier lives.
Being liked is a great thing, so what is the problem with that?
Think about the following, if you can purchase only one stock, which stock would you be more likely to purchase:

If you chose the second option, what are you planning to tell your friends when they ask about it? Or even worse, how would you feel when they will brag about the big success they had?
Not an easy answer.
As oppose to the great benefits of being liked as part of your place in society, Making an investing decisions based on the level of likeness that you will obtain is not always a smart move.
When making the investment decision, we need to ask ourselves some of these questions:

  1. What is the value of the company versus its current price?
  2. What are the company future prospects?
  3. How effective is the company management?
  4. Do I really know enough in order to make a smart decision? If not, where can I learn more?

In my next article we will discuss these questions, and the famous Mr. Market figure as told by Professor Benjamin Graham. Stay tuned.
For now, we tend to like people that provide us with value and knowledge, answering the above questions and discuss it with your friends will allow you to make savvier investment choices, and furthermore, will increase your likeness based on your valuable knowledge.
Overconfidence and commitment
Do you think most people are confident in themselves or not? You might find it interesting to learn about these findings:

The U.S Census Bureau reports that 50% of new ventures close within the first four years.
How would you answer the above questions?
Confidence is very important in making any decision, and lack of it can prevent us from making even simple decisions. However, overconfidence, and especially overconfidence that is not backed without key facts, can be fatal to your investment results.
On top of us being overconfident, we also tend to commit and even anchor to our previous decisions.
Think about the following

In 2004 shareholder meeting Warren Buffett said: “I bought something at X and it went up to X and 1/8th, I sometimes stopped buying, perhaps hoping it would come back down. We’ve missed billions when I’ve gotten anchored”
The mix of our overconfidence in our selves and our tendency to anchor and commit to our previous decisions can lead to undesirable results with our investment decisions.
What can we do to avoid that?
The first step is to acknowledge these traits and not be fooled to believe that you are different, as Richard Feynman said “The first principle is that you must not fool yourself – and you are the easiest person to fool”.
Other ways to avoid these psychological factors when investing:

What should you check before purchasing or selling a stock? How do you know the value of a company? Why it takes longer for people to plan their vacation than to purchase a stock? I will answer these questions and many more in the next article.
Amir Avitzur
Avitzur Asset Management, LLC
www.AvitzurInv.com
Amir.Avitzur@AvitzurInv.com
[box type=”bio”]Amir Avitzur has fallen in love with Metuchen in 1998 and has been a resident of Metuchen since that time. Amir is married to Sharon, a local Yoga Instructor and an author. Sharon and Amir are proud parents to two Metuchen boys that are currently on the Metuchen swimming team. Amir has founded and is the president of Avitzur Asset Management, LLC an investment advisory firm in 2004, and provides investment advisory services to Metuchen, New Jersey and New York residents.[/box]
Important Disclosure
Avitzur Asset Management, LLC (“Avitzur Asset Management”) is a New Jersey and New York registered investment adviser with its principal place of business in the State of New Jersey. Avitzur Asset Management and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which Avitzur Asset Management maintains clients. Avitzur Asset Management may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any information contained in this article represents Avitzur Asset Management’s opinions, and should not be construed as personalized or individualized investment advice. Avitzur Asset Management cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of this article bear complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves the potential for gains and the risk of losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Any information prepared by any unaffiliated third party, whether linked to this newsletter or incorporated herein, is included for informational purposes only, and no representation is made as to the accuracy, timeliness, suitability, completeness, or relevance of that information. All opinions expressed and information and data provided therein are subject to change without notice. Avitzur Asset Management and/or Amir Avitzur, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the Publications. Nothing in this article is intended to constitute individualized investment advice. For additional information about Avitzur Asset Management, including fees and services, send for our disclosure statement as set forth on Form ADV from Avitzur Asset Management using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

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