GREATEST RISK TO OUR PORTFOLIO

Sometimes we do consider some things inflation, big banks, or the federal reserve as the greatest risk to our portfolio but that is not true because we are the enemy of ourselves when it comes to investing. I am going to be talking about investor bias and how to understand the processes going on in our brains. The first one I will be talking about is confirmation bias and which is when we try to accept new information to what we already know. This validation makes us feel right and it simply means we tend to see the world in our own reality instead of how it actually is.

A good example is a chart because it can tell us what we want to hear and this is where the market is bullish. We can ignore those charts that counter what we are seeing. One of the ways to counter it is to find accounts that disagree with you and I learn fr them even though is disagree with it, at least you learn. You can always be right so you show to learn that it is okay to be wrong sometime.

Another thing is loss aversion and it is because we humans are risk averse. This simply means as human beings we tend to pay attention to not losing than finding how to win. The pain of losing is higher than the pleasure of winning because money could be a highly emotional thing. The emotions show forth in your portfolio by panic selling when the market goes down or by holding to a losing position larger than expected. There is a good way to mitigate the effect of the bias, it is by setting a target when investing in any crypto asset.

Another bias is availability bias, which is simply when we weigh something based on the available information about that particular thing. What our mind those is mistake immediacy for significance and this makes us overvalue recent information in our decision-making process. For instance, if we check the new news, it is always feeding us with events and bad headlines. A good way to outsmart it is to study data and use it to calculate the probability of an event happening. A long-term view is also a good way because it can help you to understand the crypto market cycle.

The gambler fallacy is a very tricky one to consider, it is simply when we think future possibilities are actually determined by past events. We can argue that history does not repeat because it does repeat but not all the time. You should gather resemble information to make proper decisions rather than using your own ability.

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Another big one is the herd mentality, we are all guilty of this because it is when we follow the crowd. For instance, when the market is bullish, many investors will want to get into the market even those the market is already way higher than expected. What some people will be thinking is that everyone is in this coin, so they will want to invest in it right when the market was about to burst. You have missed the coin we have now, this is still s a lot of opportunities that are coming. Optimism and pessimism bias other things to consider, it is when the market has done 10x and is still Optimistic about the future and holding to the position only for the market to crash. On the other hand, pessimism bias is very you think the market has reached its bottom only for the market to drop even further.