In a 1987 experiment conducted by Koichi Ono

In a 1987 experiment conducted by Koichi Ono, participants were asked to respond to a signal light with points. They weren’t told to do anything specific, but they were able to pull three levers.

They were aware that points were awarded regardless of what they did, but they could only see their score on a counter. In terms of points awarded, they were ineffective in any way.

They noticed strange behavior from the participants as they tried to get as many points as they could during the experiment. The majority of subjects engaged in superstitious behavior, primarily through patterns of lever pulling, though there were a few who engaged in elaborate or even strenuous behaviors. The beginning of each of these superstitions was a coincidence. The participants might pull levers in a particular order in some instances. Even more bizarre behavior was observed in other instances, such as a person jumping off a table and then jumping up to “score” points by touching the ceiling. Keep in mind that the points were given out on either a fixed or variable schedule, not based on what the participant did.

The point here is that, as humans, we frequently believe that insight is luck. We are unable to effectively analyze the situation and determine the true cause of our success or failure. This conduct will cause financial ruin when investing. We must first document our investment decisions and then evaluate the outcomes to help us overcome our natural tendency. If we want to become successful investors, this assessment process is essential for each of us because it enables us to learn from both our successes and our failures.

Learn from Investment Mistakes What should you record before making a trade to help you avoid investing mistakes? Regarding a stock I’m considering, I like to look at three categories. In the beginning, I take a look at a number of fundamental facts like earnings yield, return on capital, revenue growth, insider holdings, the industry, and free cash flow. The fundamental information helps me determine whether this is a successful business with potential, good management, and growing earnings. I determine the company’s inherent dangers after reviewing relevant financial information, including SEC documents. Competition, market share, insider dealings, any pending litigation, and other potential threats include In this situation, one must attempt to identify and critically evaluate each potential risk. Last but not least, I examine the stock’s chart in an effort to locate zones of support and resistance. I get the trailing stop loss, potential entry points, and exit targets from this. I conclude these sections with a written trading strategy outlining my anticipated trading strategies. Before making a trade, all of these investment factors should be documented. I review them after the trade is finished to see what I can learn to avoid investing mistakes in the future.

Before making a decision, we must document our actions in order to learn from our investing mistakes. When evaluating our results, we must also be honest with ourselves. As we’ve seen, it’s very easy for each of us to put on a happy face and pretend to be better investors than we actually are. Without distorting the feedback we get from our decisions, we need to evaluate our investing skills critically. Those of us who are able to acquire this useful skill will greatly benefit. Those of us who are unable to put this knowledge to use will, at best, be doomed to mediocrity and will probably lose a significant amount of their capital before even considering investing.