Yesterday, the stock price hit a new low, and a large number of retail investors poured into the stock market amid a bottom-buying sound, only to close today, and find themselves standing on the mountainside again.
Why do I keep buying stocks at high prices?
On the bustling streets, the shops along the street have changed one after another, rushing by like flowing water. Gorgeous signboards hang at the entrance of each shop to attract the attention of passers-by, however, the tide ebb and flow, and the fate of these shops is like a tide, coming and going in a hurry.
A fashionable clothing store where the owner is confident that his taste will attract countless customers. However, as time went on, there were few customers. Soon after, the store quietly closed, leaving a trail of disappointment and regret.
Immediately after, a café opened in the same location. The owner of the café confidently claims that his coffee is the best in town. At first, there was a steady stream of customers, but as time went on, people began to realize that the coffee didn't taste as good as the owner claimed. Eventually, the café was closed.
Every shopkeeper is overconfident and thinks they can be the center of attention on the street. However, they neglected to understand the needs of their customers and gain insight into the market, which ultimately led to their own failures.
In psychology, this is called the overconfidence effect. It is a common psychological phenomenon that makes people biased in evaluating their abilities and judgments, leading to wrong decisions and behaviors. This phenomenon makes people tend to assess their abilities with too much confidence and ignore or underestimate the risks and mistakes that may exist. The overconfidence effect can lead people to make bad decisions because they are overconfident that their judgments are correct and ignore other possible factors or opinions. This phenomenon exists in various fields, including construction, finance, healthcare, etc.
Buying stocks at high points is affected by this effect: showing excessive confidence in one's ability to predict market movements and make profitable trades. This overconfidence can lead to excessive risk-taking, ignoring warning signs, failing to fully consider the uncertainty and risks of the market, and ultimately leading to a large loss.
Surprisingly, the overconfidence effect affects experts more than non-experts, and an economics professor can be just as wrong as non-economists in predicting the five-year trend of oil prices.
So the next time you make a choice, be skeptical of all predictions, especially if they are made by so-called experts. Please plan everything from a pessimistic perspective and prepare for the worst. Then you will really have the opportunity to judge the situation more realistically.
Coping strategies:
1. Self-reflection: Recognize the existence of the overconfidence effect and always maintain an objective assessment of your abilities. Reflect on your own decisions and judgments and look for possible biases and blind spots.
2. Seek feedback: Communicate with others and accept their feedback and suggestions. The perspectives and opinions of others can help us evaluate our own abilities and decision-making more fully.
3. Think from multiple perspectives: Gather as much information and perspectives as you can before making a decision. Consider different possibilities and risks, and avoid being overconfident about focusing on just one solution.
The overconfidence effect is a common psychological phenomenon, and we should recognize its existence and adopt corresponding coping strategies. Through self-reflection, seeking feedback, and thinking from multiple perspectives, we can evaluate our abilities and decisions more objectively, avoid blind confidence, and achieve better results.