The Illusion of a Bull Market; Don't Confuse Brain with Bull Market

 Whether new investors or veterans in the stock market, everyone's investment is increasing overall during the bull market. In a growing market we think it is very easy to invest in the stock market and we believe that our intelligence and skills are increasing. We see an increase in our ability to invest and ingenuity as we see our share capital increase and ignore the investment risk when the market declines. In fact, when the market trend stops, it can be very dangerous for our investment.

"The brain of a person addicted to cocaine and the person who relies on financial gambling are equal," say researchers. In a bull market, investing too high in investing without risking risk management can lead to accidents. Bull markets can force investors to abandon a systematic investment process and lead to investment instability. It is difficult and true to be consistently disciplined in your rules at a time when other investors are growing differently. These feelings can get us into trouble, since such extreme decisions are often made in the marketplace.

Sometimes we don't want to learn investment methods or believe because our erratic portfolio (investment), the market is making better profit than average. This is often the character of the bull market. At such times we become victims of emotional prejudice. We are emotional because we are overconfident, full of emotional prejudices such as overconfidence bias. According to the CFA Institute's definition, "people with emotional bias display undue confidence in their own reasoning, judgment, or abilities." The effects of overconfidence are to downplay the risks and to maximize the expected returns. This can lead to a bad portfolio (investment) and a bad return.

How can we (individual investors or financial professionals) solve this problem?

First of all, we need to review, why and how we have chosen our investment, is that discretion still there?

Second, what is the past performance of our portfolio compared to a professional portfolio or the overall stock market? This should be reviewed.

We need to bring our testing to a more cognitive and analytical level. Under which we need to review and realize our investment practices. Have we made a fortune from the bull market even though we don't have the capacity or are we capable?

We have to remember the mistakes we made in our past investments and keep in mind that no one knows what the future holds for investment. We must prepare ourselves for a wide range of investment risks and consequences. The most important thing is to be humble towards the market. We are not always as smart and intelligent investors as the bull market has always been and the growing market has made us feel.

That being said, we are not bad or ignorant investors. But it is in the interest of the investor to pay attention to the above while investing in the stock market.

Translated from Nepsealpha