Baseball, flirting and investing all have a large mental or psychological component. In the first two cases, everything is about confidence, but in investing, confidence can be a burden if it’s not justified.
You can choose your lottery numbers in any way you wish, but making and liquidating investments should be done based on facts and nothing else. Our minds evolved to deal with the threats and opportunities found on the Serengeti plain, not the NYSE, yet we still try to apply the same mental paradigms to things like investing. In addition, our subconscious fears and hopes influence our decisions to a greater degree than most of us realize. Mechanisms like these have an effect on every investor, but a few of the most common psychological pitfalls deserve a special mention.
“Until you can manage your mind, do not expect to manage money.” – Warren Buffet