নিজের মনের ফাঁদ Your own biases

Every lesson in this stage so far has looked outward: at companies, accounts, markets. This one looks inward, because an investor's most consistent opponent is not the market but their own mind.

The tendencies described here are not weaknesses, they are ordinary human wiring. They cannot be removed, and they can be planned for. This lesson teaches you to recognise six and gives you an arrangement for each.

Six traps

Each has a name, and knowing the name helps: a thing with a name is easier to catch in yourself. "I am reading mostly the news that supports this share" is an observation, and the observation itself breaks half the trap.

One: looking for agreement

You bought a share. Now you look for news about that company, and the items supporting your decision get more attention. Contrary information you read and forget.

The arrangement: the risks written in your thesis. Because they are specific and measurable, checking them is a task rather than a feeling. Once a year, looking only at those three things is enough.

Two: the anchor of your purchase price

You bought at 80 and the price is 52. You say you will sell when it gets back to 80. But the market does not know what you paid, and neither does the company.

The arrangement: one question, asked regularly: if I did not own this, would I buy it at today's price? If the answer is no, the reason for holding is the purchase price, and that is not a reason.

Three: the fear of losses

Research suggests a loss is felt roughly twice as intensely as a gain of the same size. The consequence is an inability to sell a losing holding, because selling makes the loss real while holding keeps it on paper.

But a paper loss and a real loss are the same thing. What your assets are worth today is today's price, whether or not you sell.

The arrangement: writing the selling conditions on the day you buy, as the lesson on the three reasons to sell set out. When a condition is met the decision has already been taken.

Four: what comes to mind easily

You hear one company's name every day, so it feels safe. A recent accident is fresh, so that kind of risk feels large. The mind does not measure probability, it measures ease of recall.

The arrangement: numbers. What percentage of companies has this happened to over ten years? Asking that turns a feeling into a fact.

Five: overconfidence

This is the most expensive one, because it acts on position size. The decision you are most certain about is where you put the most money, and the largest losses come from exactly there.

The arrangement: a maximum limit, as a percentage, fixed in advance, and not raised however confident you feel. Diversification is largely an instrument against this trap.

Six: the pull of the crowd

The lesson on crowd behaviour looked at this from the market's side. From the individual's it is simpler: being wrong alongside everybody hurts less than being wrong alone, so people want to stand with the crowd.

The arrangement: a written argument and a monthly rule. A rule makes a decision automatic, and an automatic decision offers the crowd no entrance.

What this lesson does not claim

It does not claim you can free yourself of these tendencies. Nobody does, and those who think they have are usually in trap five.

What it does claim is this: each trap has a written rule against it, and the rule is more reliable than your mood. Which is why this whole stage insists on writing: writing a thesis, keeping records, fixing conditions in advance. Written things do not change, and minds do.