While it may not seem intuitive, the battle of objective vs. subjective decision-making often makes an appearance in investing.
Okay, so how does this influence investing? Investors should approach investing purely objectively and make their decisions based on hard analysis of the facts. You’d expect an investor to do some due diligence on their investment options and once that’s done simply select the option with the best return or that best meets their objectives. While that sounds straight forward it’s a lot harder in practice as investors are influenced by perceptions of companies, both public and their own, as well as simply their ‘gut feel’ of a company.
For some investors this works well, they pick the winner that no one else saw coming. For others, they commit to an investment for the wrong reasons and it burns them. Investors also struggle to remain objective once they’ve made an investment. A stock takes a hit and they dump it in a hurry, or a stock appreciates and they hold on to it even as it declines because they remember that good performance. The goal of investing is to buy low and sell high and either of the thought processes above defeats that goal.
When making investment decisions it’s always important to make sure you think about and consider whether you are letting subjective thoughts work their way into the process.