Psychology and behavioural traps often can lead people in wrong directions & into making wrong decisions. Even quite often in the stock market, and EVEN MORE so in a stock market of footballers were we all have our favourite teams, players and prospects. This article will take a look at 8 psychological traps of investing. Even a brief scan through these I’m willing to bet one or two will seem very relatable. It is based off an investopedia.com article which be linked to at the end BUT will be simplified, adapted & illustrated for the purpose of Football Index.

#1. The STAT Trap

This is known as an ‘anchoring-trap’ which refers to an over reliance into what one originally thinks. It refers to getting to caught up in the flashy stats & figures and doing brief minuscule research. Imagine betting on first goal scorer because young prospect “Scott Gerrard” has an average of 1.8 goals per game this season so far so he seems a cert bang one in. Well in fact he has that ratio due to a substitution appearance where he scored a hat-rick and other than that doesn’t start in the team. You will come out picking a the better statically footballer but clearly will not be a good shout for first goalscorer or, in FI terms, a good hauling PB score if he doesn’t play full games. ANY metric can be taken out of context and become meaningless. One can look at Lukakus goal scoring stats per season & think he’s a great buy, but realistically, Lukaku isn’t a great all rounded footballer, yes he scored goals but his touch, passing etc isn’t great and wont make for great scores on the PB matrix to win dividends. In order to avoid this trap, you need to be open and remain flexible to new sources of information.

#2 The Sunk-Cost Trap

This one to me is the most dangerous and relatable. Its about protecting your previous choices and investments. Its the tough reality of being able to accept you made a bad investment and its hard to take and accept the loss. But rather than sitting there convincing yourself its the right choice, looking for articles and comments that back it up, ignoring the ones that don’t, the sooner you actually get the capital out and into something more potentially promising.

ON TOP OF THAT with football Index, when buying and investing in football players, we can get emotionally attached to them. As ridiculous as it sounds. As a Arsenal supported you could be convinced that Saka is going to be the ‘next messi’ and actually want that to happen so bad that emotions out weigh logical thinking & trading. Happens to the best of us. Sitting watching a pre-season friendly, or the u23s and seeing by chance a youngster shine, thinking no body else or very few will be watching & you’ll get on him at a bargain price…. 12 months later he’s gone on loan to Turkey with obligation to a permanent deal. Be careful.

#3 Confirmation Trap

Very relevant, especially if you follow an influx of FI Twitter accounts and “tipsters”. This trap refers to when you when you’ve made a bad investment & seek out the original source or others who have made the exact trade and are in the exact same position for advice, where they reassure you that use have made the right choice. To combat this, make sure you get various advice from various sources and do thorough research yourself. By all mines listen to others, especially those who have been successful, but don’t use that alone for a basis to invest your own capital.

#4 Blindness Trap

Quite similarly, the blindness trap ‘can exacerbate the situation’. Even those not in search for confirmation or re-assurance of a bad trade will often just shut out and ignore any articles or information that blatantly tell them that they are wrong, and give bid red flashing warning signs. If you’re aware of this in the back of your head yet read everything but, you’re suffering from this.

#5 Relativity Trap

Best put by Investopedia regarding investing full stop. Football Index of course applying. For an example. Just because you see someone buy 6,000 shares in the next exciting prospect, Doesn’t mean you have to. Invest what you can afford.

#6 Irrational Exuberance Trap

Very very applicable to Football Index: This occurs when investors believe that past patterns will equal future patterns they are acting as if there no uncertainty in the market. Where as, as they put it: uncertainty never vanishes.

There are always ups and downs, bubbles etc. And other unexpected losses in the market. Believing that the past equals the future you have what is described as over confidence. When this happens, what happens is a situation where investors over pump the market to the point a correction is inevitable. And like most stings, those who get hit the most are those that get in just before that correction.

In football Index you might look to the likes of Mason Greenwoods price to apply to this. Traders are over confident that like the past, man united will produce a MB and possible PB machine. Is this over confidence??

#7 Pseudo-Certainty Trap

Not one that applies to ourselves but for sure one I see constantly. This essentially means that when ones portfolio is flying and all things are trending, investors are less likely to take risky moves and investments when they can actually afford to. Appose to the likes when things arnt looking too good, and theres little room for more error, investors will actually tend to be more risky with trends. Investors are willing to risk money to win back capital appose to creating more when they can. An obvious move when thought about but yet the behaviour might seem relatable.

#8 Superiority Trap

This one quite simply means that no one person is smart than an entire market. Despite education, background or intelligence. A lot of people think they are better than investing experts or even the market itself as a result. It doesn’t mean that you won’t benefit from some good advice of the experts. Many football and investing experts have made huge losses thinking they where better and ahead of the rest. Be careful!

Final Note

I can see this article will get a lot of both positive and negative reactions. To the positive, Thank you. To the negative: I am aware these “traps” aren’t black and white and doesn’t apply to every single situation. Yes sometimes, you might actually have out smarted the market & found someone no one has. Yes sometimes ignoring negative articles about your holds may actually work in the long term and yes maybe holding over a bad storm of a share will work out in the long term. These are all very true. This is very much a patience game. Im not encouraging anyone to panic sell or sell off anyone. Just trying to make people aware. You’d be lying if you said at least one of these hasn’t been relatable to one or more of your past trades. If this can prevent someone from loosing as much as £1 or even £1,000, it’ll have been worthwhile.

Original article link: https://www.investopedia.com/articles/investing/060513/avoid-these-common-investing-psychology-traps.asp

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