Investment psychology is discussed far too little, so I’m posting this video here as well, where @Karo_Hamalainen and Riku Pennanen talk about the subject 
“Even if the analysis were perfect, results can easily remain elusive if one’s own behavior messes it up. Many know in theory what they should do – but are unable to do it in practice,” says Riku Pennanen, head teacher of the Quality Investing School from Sifter.
In the final episode of Karo’s Grill and Sifter’s joint four-part Quality Investing School, the discussion focuses on investment psychology and the typical mistakes investors fall into.
If you can eliminate the worst mistakes from your own behavior, logically it should be an easy way to improve investment returns. The father of value investing and idol of the young Warren Buffett, Benjamin Graham, said that the investor’s chief problem—and even his worst enemy—is the investor himself, meaning his own actions.
One of the typical mistakes is selling a good company too early and staying in bad companies for too long. The classic investment advice seeks to tackle this: “Cut your losses, let your profits run.”
“Even though the advice sounds easy, it is difficult to follow. According to studies, a loss feels worse to a person than a corresponding gain feels good. In other words, we react to losses emotionally much more strongly than to gains,” says Riku Pennanen.
A quality investor could be thought to be protected from some common investment errors. Quality investing—buying high-quality businesses and owning them long-term—is well-suited to shifting attention away from the share price, and it is precisely share price changes and swings in market sentiment that are prone to causing expensive behavioral errors for investors.
“A long-term quality investor buys business results, not share price movements. Price volatility is inevitable, but in the long run, the direction of earnings growth is what matters,” Pennanen reminds.
Topics:
0:00 Start 1:35 The biggest investment mistake of Finns 3:33 Market return vs. investor return 4:46 Selling too early 16:04 Fear of buying high 26:50 FOMO, i.e., fear of missing out 29:47 Hype cycles 39:05 Short-term thinking 39:39 Catching falling knives 51:44 Episode summary