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Yee Ong
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Yee S. Ong, CFA is the author of "The Strategist's Mind: The Art of High Return, Low Risk Investing" and the principal of YSO Capital Management, LLC, an investment management firm located in Burlingame, California. Yee has more than ten years of professional experience in the... More
My company:
YSO Capital Management, LLC
My book:
The Strategist's Mind: The Art of High Return, Low Risk Investing
  • Increasing Your Success Through Psychology 0 comments
    Mar 31, 2010 2:14 PM
    One of the most important criteria to being a successful investor is to invest with your head and not your heart. Otherwise, you could be up for a broken heart.

    Emotion taints investors’ judgments and causes people to behave irrationally with their investments. For instance, people’s greed during the late 90s had caused them to continue investing in the dot com companies despite the shallow fundamentals and people’s fear during the recent financial crisis had led them to relinquish stocks indiscriminatingly.

    The Nobel Prize in economics was awarded to psychologist Dr. Daniel Kahneman in 2002 for his research in understanding how human decision-making under uncertainty may systematically depart from those predicted by standard economic theory.

    According to Dr. Kahneman, “What actually happens with fear is that probability doesn’t matter very much. That is, once I have raised the possibility that something terrible can happen to your child, even though the possibility is remote, you may find it very difficult to think of anything else… Emotion becomes dominant. And emotion is dominated primarily by the possibility, by what might happen, and not so much by the probability. The more emotional the event is, the less sensible people are.”

    You can apply the same concept to the lottery where the possibility of a windfall drives people to buy lottery tickets despite a low probability of making a good return.

    Disclosure: No Position
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