In the book Behavioural Investing, A Practitioners Guide to behavioural Finance, James Montier, discusses the "Seven Deadly Sins of Investing". larry Berman discussed the same yesterday on BNN (watch)
- Forecasting (Pride)
- The Illusion of Knowledge (Gluttony)
- Meeting Companies (Lust)
- Thinking You Can Outsmart Everyone Else (Envy)
- Short Time Horizon or Overtrading (Greed)
- Believing Everything You Read (Sloth)
- Group-Based Decisions (Wrath)
1. Pride/Forecasting: We know how wrong they are. At best, they are 50% right. larry comments on the The Federal Reserve has the worst economic forecasting record of all financial forecasters. In addition, over 80 percent of portfolio managers do not beat the index.
2. Gluttony/Knowledge: The more information analysts have about a company, does not mean better forecasting. In fact, it can work agaisnt you as you get lost in meaningless information for which incorrect impiotance is assgined. Humans also have cognitive limits to process information.