Self-psychological Construction in Stock Investment


In stock investment, psychological construction is very important, and we also need to know how to avoid the influence of psychological prejudice.

The markets are evolving, investors are getting smarter, and the past investment strategies are becoming ineffective. For example, the EMA strategy can achieve a very good return for a long time before 2010, but its performance has not been ideal in recent years. In early years, value investment was still a relatively unpopular investment method, but today in 2022, it has gradually been accepted by many investors.


In order to achieve a return that is ahead of the market as a whole, we need to constantly upgrade our investment methods. If you want to achieve a huge return on investment, continuous and hard work is needed. When Peter Lynch, one of the most famous fund managers in history,  answered the TV host's question "What is the secret of your success" in 1982, he said truthfully: "In order to achieve investment success, I have to visit more than 200 companies and read 700 annual reports every year." 700 annual reports and over 250 working days, mean that reading about three complete annual reports a day, not to mention visiting more than 200 companies. Coincidentally, Buffett also pointed out a similar view-"intensity" is the price of excellence, and to become rich and become the first in the industry, you must continue to focus on it.


Some surveys suggest that at least 10,000 hours are needed to be successful in the industry, such as athletes, doctors and performers. Although investment includes skills, it definitely depends on tireless study. Experts and scholars spend thousands of dollars every year on books, reports and data.

In addition to diligence, investors need to be absolutely rational and objective to themselves and the market in order to obtain continuous appreciation of assets. Unfortunately, we can't get rid of the influence of greed and fear, and behavioral finance also proves that people make some mistakes caused by prejudice when investing. It is not easy to eradicate these mental deviations, because they reflect the irrationality of people's behavior. But only by finding problems can we solve them better.


One of the most commonly seen types of decision deviation is over-optimism. There is a very famous psychological survey. After interviewing a large number of motorists, "What class do you think your driving level is in the crowd?", as many as 67% of motorists think their driving level is above the average. Of course, there must be 50% behind the average and 50% ahead of the average. This is actually a full reflection of over-optimistic deviation. The same is true in investment. Self-confidence in one's own strength is a good thing in most fields. Without self-confidence and optimism, many great entrepreneurs are afraid that they will not persist until the day when they succeed, and they will be crushed by pressure. However, in the investment field, excessive self-confidence may make investors suffer huge losses.People always have the desire to make more profits. On the premise of not being satisfied with basic income, they think that their new knowledge is enough for them to embrace new investment ideas and obtain higher returns. But all higher yields mean higher risk, and the effective way to reduce risk is probably far more difficult and complicated than these conceited investors imagined. 

As Taleb put it, "A deeper understanding of something does not significantly reduce the tendency of people to exaggerate what they actually know. "