5 Investment Myths That People Blindly Believe In


2. Follow others while investing in asset

This "safety-in-numbers" is one such concept that has its origin in crowd psychology. In simple words individual investors often feel safest investing in a particular asset when their neighbours and friends are doing so. But unfortunately it is usually leads to failure. The reason is that if everyone is bullish and has bought into the asset there is no one left to buy in the face of more good news, but plenty of people who can sell if some bad news comes along.

Of course the opposite applies when everyone is bearish and has sold - it only takes a bit of good news to turn the market up. The trick for smart investors is to be skeptical of crowds.

3. Recent returns are a guide to the future.

This is a classic mistake investors made by almost all the investors. Reflecting difficulties in processing information and short memories, recent poor returns are assumed to continue and vice versa for strong returns.

The problem with this is myth is that when it is combined with the "safety-in-numbers" myth it results in investors getting into an investment at the wrong time and getting out of it at the wrong time.