WeiMiao Business School dry goods sharing: loss aversion and survivor bias in investment

category:Finance
 WeiMiao Business School dry goods sharing: loss aversion and survivor bias in investment


2. Increase the position immediately without thinking about it, in order to reduce the cost of holding position, even if it is bought wrong.

Then, it will change from floating loss to real loss, or fall into a bigger floating loss.

We have found that no, although our course adheres to the value investment philosophy inherited from Graham and Warren Buffet, although many of our classmates have read the works of Graham or Warren Buffett, we feel that we have gained something after each course, because the concept of value investment and our course are indeed insightful, logical and systematic.

But when we close the book, after class, we may forget, why?

What are the biggest obstacles that hinder us from forming a correct value investment philosophy? How can we overcome it?

Why cant mahjong stop when its playing?

We will find it difficult to stop once the mahjong table is seated. Often unconsciously on an all night, why?

Because the losers want to double and the winners want to win more. Especially those who lose money cant stop. However, no matter whether the state is losing or winning at that time, the probability of winning or losing for the next one is unchanged, and there are still some losses and wins.

So why are the losers so persistent? In fact, this is what loss aversion is doing - the psychological impact of loss is often much greater than that of gains.

For example, as like as two peas, the pleasure of 10 thousand yuan in floating is 10 thousand yuan, which is far less than the psychological pressure of 10 thousand yuan. The psychological pressure of 10 thousand yuan is far less than that of the first, and the first is 10 thousand. Then the income is reduced to 0, and the psychological deficit of 10 thousand yuan is brought back. Although the two are identical in result.

Human aversion to loss (negative utility) is much more than pleasure (positive utility) to gain.

Floating profit 10000 yuan, may be happy all morning, and then what to do. Once you lose 10000 yuan, you may have a long night, no intention to sleep, turn off the lights and eat noodles, and the men and women will cry.

To take another extreme example, economists have done such experiments before:

A. If you roll a positive, you get $150;

B. If you throw the reverse, you lose $100;

Would you like to gamble? Obviously, the scale of the game has been tilted towards the players. If any casinos really wanted to set up gambling in this way, they would have gone bankrupt.

But surprisingly, most of the people in the experiment chose not to take part in the game. That is to say, the happiness of $150 is not worth the pain of losing $100.

This case fully demonstrates that loss aversion is a part of human nature, and we must be anti human if we want not to be cut off leeks.

However, it is a pity that when faced with two situations from floating profit to floating loss and direct floating loss, most people often follow human nature directly and act in accordance with human nature immediately - that is, we mentioned above to sell immediately or blindly increase positions.

And this is the investment taboo.

Jiangbei Xiazhu village, Futian street, Yiwu City, Zhejiang Province, is only a village, but now it is famous for its live broadcasting with goods in China. There are about 5000 market entities in the village, with more than 50000 social e-commerce practitioners. And every day, there is a steady stream of people seeking to become popular overnight, and continue to rush to Xiazhu village in Jiangbei.

People who blindly envy the rich with live broadcast goods are typically trapped in the survivor bias thinking.

The survivor bias came from World War II.

In 1941, during World War II, the frequency of American aircraft being shot down was very high. Therefore, at the request of the military, Professor ward of Columbia University began to study how to reduce the frequency of aircraft being shot down to improve the survival rate of aircraft.

Ward studied a large number of surviving aircraft in the battlefield and found that the wing of the aircraft was hit most frequently, while the tail was the lowest.

As a result, Professor ward suggested strengthening the protection of aircraft tail.

Professor ward gives two evidences

First, even if the wing of the aircraft is hit so many times, it can still return safely, which shows that the safety performance of the wing is higher.

Second, it seems that the tail of the plane is rarely hit, but it is actually a kind of illusion, because many of the planes hit at the tail have no chance to return safely, but crash directly.

When we see Professor Wards two arguments, we suddenly realize that the military fell into a survivor bias.. Because they only focus on the information of the surviving aircraft, but not those that have been shot down, which is exactly the key to strengthening aircraft protection.

In investment, the same is true.

Teacher, my colleagues told me to bet on XX industry. She made tens of thousands of dollars in the first half of this year. Im really excited.

Teacher, my boyfriend through short-term back and forth operation, betrothal money has been, he now wants me to fry with him, do I want to go?

First of all, as our course and Graham said: value investment is not the most profitable, but the most stable. We dont want to get rich overnight, we want to make a little progress every day. Because some people are lucky enough to make money in a short time, but for most people, value investment with stable income is the right way.

Second, everyone has fluke psychology, but if we dont pay attention to the harm of survivor deviation, we will deepen our fluke psychology and form a habit of opportunism. Reflected in the financial management, we may be blind to small broad, and finally fail.

How can we overcome loss aversion and survivor bias?

To be honest, both of them are human nature and human nature. Thats why we have repeatedly stressed that the right investment is anti human.

How can we overcome these two psychology?

We have these two kinds of psychology, to a large extent, because our cognitive level is really limited, that is, we only know some superficial information, but do not know the existence of those key information, so we make a wrong judgment.

Therefore, we should pay more attention to learn more and improve more, broaden our horizons and expand our cognitive scope.

However, Ma Huateng can only earn money in his own cognition, so Ma Huateng is no exception.

In the same way, only by constantly expanding our cognitive boundaries and learning can we constantly increase the boundaries where we can make money.

2. Do things in the long run.

Similarly, in investment, the more anxious you are to make money, the more you will lose money. This is already an iron law.

3. If you want to grow up, dont be afraid of pain.

Teacher, I cant learn because Im stupid.

Teacher, my family wont let me study. I think Im a waste of time and money. If I have this time, Id better take a job.

Teacher, my family is in a special situation at present, so I cant persist.

Suppose that you have ma Huatengs wechat, will you delete Ma Huatengs wechat because you are stupid, the family disagrees, and there is something wrong with the family? In the same way, you cant bear to see that you cant bear to see your pain, and value investment is the best medicine to solve your current problems. But you dare not break into the unknown growth zone, because you are afraid of pain. You dare not break the cocoon like a butterfly, because you are afraid of pain. You dare not open a new life, because you are afraid of pain. Some people, life only do two things, not accept + strive for, eventually, has been growing. There are also some people who only do two things in their life, waiting and regret, and they can only get worse and worse in the end. Therefore, the difference between value investors and ordinary people is not only the difference between more money and less money, but also whether they are willing to practice, anti humanity investment and growth. Source: editor in charge of mass news: Chen Tiqiang_ NB6485

Suppose that you have ma Huatengs wechat, will you delete Ma Huatengs wechat because you are stupid, the family disagrees, and there is something wrong with the family?

In the same way, you cant bear to see that you cant bear to see your pain, and value investment is the best medicine to solve your current problems. But you dare not break into the unknown growth zone, because you are afraid of pain. You dare not break the cocoon like a butterfly, because you are afraid of pain. You dare not open a new life, because you are afraid of pain.

Some people, life only do two things, not accept + strive for, eventually, has been growing. There are also some people who only do two things in their life, waiting and regret, and they can only get worse and worse in the end.

Therefore, the difference between value investors and ordinary people is not only the difference between more money and less money, but also whether they are willing to practice, anti humanity investment and growth.