By SIMON CONSTABLE
When you start learning to invest, your mind works against you in ways you might not expect. For instance, when you look at the performance of an asset class recent activity will weigh more heavily on your mind.
So if stocks have done badly in the recent past then its more likely that you'll be persuaded that stocks are a losing bet. It works vice versa as well.
That wouldn't matter if investors, especially newbies, didn't take action based on that inherent bias. Unfortunately, they do. When stocks do well, small investors tend to pile in at exactly the wrong moment. When stocks do badly they tend to cash in their positions at precisely the wrong moment as well.
Charlie Bilello, director of research at Pension Partners, says understanding this bias is crucial to smart investing. He explains his thoughts in this video.