Many of us use short cuts on the computer (i.e. Ctrl + C, Ctrl + V) because we want to get things done more quickly. Yet mental shortcuts in investment may get in the way of you reaching your financial goals.
A recent study by the IFEC and the Department of Applied Social Science of PolyU has identified three mental shortcuts typically used by virtual asset investors:
- Availability – tendency to rely on information that is readily available, easy to recall and highly familiar
- Anchoring – pay too much attention to past information, such as prices of initial coin offering
- Overconfidence – overestimate personal investment intuition and the ability to achieve high investment returns, etc.
The study has also classified other mental shortcuts relating to virtual assets into five strategies, they are Herding, Secure Obedience, Distrustful Empiricism, Wishful Speculation and Intuitive Confidence. For details of the full report, click here.
Mental shortcuts can lead to biases, causing us to make unsound decisions. To overcome some of these biases, it helps to understand how they work and that there are ways to overcomes some of these biases, such as diversifying your portfolio, understanding the product features and risks, and how they fit into your investment goal, horizon and risk appetite. When researching an investment product, collect high-quality market information and do not let emotions sway your decision.
