PPF (Practical Personal Finance) Series

 I t is highly recommended that you please read my previous blog post, before reading this. It can be accessed here:  Cognitive / Behavioral Biases in Investment Journey- Part - I (pathikvariya.blogspot.com) Here the remaining behavioural biases: 1. Trend Chasing Bias:  This is a belief that what has continued so far, will also continue in future. For example, if the price of the share has been going up for some time, it is likely to go on and on. It is similar to the herd mentality in a way.  The decision to buy or not to buy a security, should only be based on the strategic positioning of your portfolio and your investment.  2. Worry:  Worry is nothing but always keeping oneself, in the mental state of overthinking, if everything is fine. It is like anxiety. So, it is to be avoided. 3. Familiarity Bias:   The U.S. accounts for only a small fraction of global GDP, yet U.S. investors have nearly 75% of their investments in U.S.-based assets.  (Source:  Familiarity | Behavioral Finance

  [A] Introduction:   The book - 'The Psychology of Money' has a wonderful message - wealth creation is a function of both - luck and risk. One needs to be 'reasonable' to manage the risk. One should not be over rational, neither should one be too casual with their investments. It is more of an error and trial (semi scientific and semi artistic) process, where one keeps on learning with experience and try to increase the risk adjusted returns, while keeping a margin of safety. None of us is rational and emotions are all around and in us. No one can run away from them. The same emotions, pre occupations and beliefs also affect our investment decisions. In this article, we will try and explore the biases that do not allow us to take 'reasonable' decisions related to investment.  [B] What is a bias?:  According to dictionary.com, " a strong feeling of favour towards or against one group of people, or on one side in an argument, often not based on fair judgemen