How Human Behaviour Affects Investment Decisions - Koon Yew Yin


 The stock market is a constant puzzle. Many people asked me the following questions: 

1 why I am selling JAKS more than enough to meet margin call?

As according to the company announcements my wife and I more than 150 million shares. We bought too many shares because it has very good profit when its power plant in Vietnam is completed. We were too greedy. When the price dropped due the claim by Star for late completion of the Star Tower, we need to sell some of our holdings to meet margin call and sole more to raise funds to buy Lion Industries when it was selling 70 sen per share which has very good profit growth prospect. It is not because Jaks is not good. We have too many shares. Unfortunately, this rapid price fall also cause many other shareholders to have margin call and they also have to sell. Forced selling is a vicious cycle.

If you have buying power, you should buy because it has fallen below Rm 100 and its latest announcement shows it has good profit.  

2 why I am selling Lion Industries when I know that it has a very good profit growth prospect?

Within a few weeks, we have bought about 30 million Lion Industries shares. When I know that it will announce a reduced profit for the next quarter which will be announced before then end of the month, we sold some shares to raise funds so that we can buy it back at cheaper prices. Currently, it looks like the worst is over and the price is going higher.

You must bear in mind, that you are not in the same situation as I am. I have very large capital and I can take risk. But you should not simply follow what I do without thinking carefully.

3 How to become a super investor?

To be able to become a super investor we must be able to control our emotion of fear and greed.

Basic emotional responses and mental biases can influence the way we invest. Emotions and mental biases can get in the way of rational decision-making. Behavioural investing suggests reasons why some of our actions might be counterproductive to our goals.

Avoid the potential pitfalls we must stick to a long-term plan. Investors tend to make irrational decisions because of the following 3 concepts:

Loss Aversion

With loss aversion, the pain of losses is more powerful than the pleasure of gains. This aversion to loss can contribute to panicked selling when the market drops or to the adoption of an overly conservative investment strategy to avoid short-term market fluctuations. These decisions may result in a portfolio that does not keep track with investment fundamentals.

Recency Bias

Investors tend to place greater weight on what they have experienced most recently, using it as a guideline for what might happen next. Known as recency bias, this theory may help explain why millennials who came of age soon after the financial crisis have steered clear of stocks as they have started investing—even though they have exceptionally long- time horizons when it comes to making more money.



Anchoring

The idea with anchoring is that once you are exposed to an initial fact or figure, you will continue to look back to that information as a reference point. Individuals influenced by anchoring tend to hold on to an investment that has lost value in hopes that the investment will go back up to the original purchase price, rather than focusing on fundamentals.

While there is a natural human tendency to react emotionally to market swings, investors are encouraged to stick with a consistent, long-term investment strategy. This strategy can include techniques such as portfolio rebalancing, tactical allocation adjustments, or systematic investing—approaches that take market conditions into account without derailing a long-term plan.

My advice

All the readers must check their track records. If they have not been doing well, they must change their thinking and their method of buying and selling. But you must remember that you do not have so much capital as I have to take risk.

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