Psychology to Survive the Investment World ① - Tokyo Comprehensive Institute -

Hello everyone!
We are the Tokyo General Institute of Research staff team!

Now, suddenly, what do you think is necessary to succeed in investing?

Accurate information, useful knowledge, and rich experience.

There is no doubt these are indispensable.

However, just as important as that isan investor’s mental state.

This time, we will focus on the impact of mental state on investing.

Before reading the article,【Tokyo General Institute of Research Supervised Trader Psychological Testmight make it more interesting to read!

The relationship between investing and psychology

Let us think about it with an example.

What if the price of a stock you were waiting for to drop suddenly surged?

“Whoa, I was burned! I should have bought it sooner...。”Wouldn’t you think?

In the worst case, when a similar situation occurs again, you may hesitate and make a wrong decision.

Information, knowledge, and experience are the foundations for investing.

Without these, you cannot engage in investing activities.

In contrast, mental state is what is needed to draw out the full power of those things.

If you have a solid mental state, it is easy to master the tools you have on hand.

On the other hand,if your mental state is unsettled, even with rich information, knowledge, and experience, you may not be able to make calm judgments and will repeat mistakes.

Strengthening mental state in a short time is very difficult.

However,by exposing yourself to the ideas of behavioral psychologyyou can more easily maintain mental stability.

So, in the remainder of this article, from the insights of psychology related to investing behavior, we will clearly explain “normalcy bias” and “Concorde effect.”

“What is normalcy bias”?

One of the causes that prevents appropriate judgment in investing contexts isnormalcy bias.

“Bias” refers to a cognitive distortion that hinders accurately perceiving things.

In other words, “normalcy bias” meanstrying to justify one’s actions by ignoring or underestimating inconvenient information.

When normalcy bias is at work, you cannot retreat even in obviously loss-cutting situations.

“Not yet safe” “This time it should be okay”are unconscious thoughts that cause great damage.

Similar to normalcy bias is“overconfidence bias”.

It is a state of having more confidence in your abilities than your actual abilities, making you more likely to rush into unnecessary risks.

A history of big successes tends to lead to this bias, but in the rapidly changing investment market, continuing to bask in past glories is very dangerous.

One famous investment adage is,

“The line-maker, drag your feet and push your feet out”

which refers to lines drawn on charts; line-makers used to draw stock price movements by hand with pencils and rulers before computers.

Naturally, the amount of work was limited, and people often interpreted in ways favorable to themselves, causing losses.

Precisely,“line-makers were biased”.

What is the “Concorde effect”?

Excuse me, everyone,Concorde—have you heard of this airplane? It was a passenger aircraft developed jointly by the UK and France that flew at Mach speeds. This Concorde incurred enormous costs during development, and

because of the costsproduction was eventually halted, a sad episode for this aircraft.

This psychological term named after the Concorde isConcorde effect.

Specifically,you continue to invest even at the cost of losses, lamenting the time and money you have already spent.

Everyone, have you ever thought like,“I’ve waited so long... the price might go up further... I won’t sell yet!”

In such moments, recalling the Concorde effect can help you regain calm.

From the perspective of an investor who is not confident in themselves, seeking calm market analysis...toyou want market commentary from a calm investor’s standpoint...for those

Tokyo General Institute of Research Stock Blog and Investment Advice 20-year veteran manager’s investment informationPlease read along.

In closing

How did you find the behavioral psychology of investing?

It is important not to be trapped by unfounded confidence or past successes.

However, it is also not good to move with a lack of confidence or to fear risks excessively.

Let us maintain a balanced approach.

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