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Biased people against stocks

Discussion in 'Beginner's Lounge' started by blaz0430, Jul 28, 2014.

  1. blaz0430

    blaz0430

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    Why are people so biased when it comes to trading shares and commodities etc. Many people give the stock market a bad name because of the money they lost but seriously, it's not that hard to set a stop loss right?
     
  2. Value Collector

    Value Collector Have courage, and be kind.

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    Are you talking about the stock market in general, or just trading?

    If you are talking about trading, then it is probably the perceived risk / gamble of it. Most people have no idea what drives share prices. So it's no difference to the spin of the roulette wheel in their eyes, where they are betting on red or black, added to that the trading costs and fee's basically act like the Green zero on the roulette wheel, putting the odds at less than 50/50 in favour of the house.

    I am not saying that there are not very skilled traders, that can effectively put the odds in their favour, however the average punter can't.
     
  3. darkhorse70

    darkhorse70

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    Because it sounds like a get rich quick scheme. In reality its the complete opposite. It requires alot if hard work/understanding/skill and a touch of good luck. Even a stop loss cant help you someimes when the market opens 15% lower haha
     
  4. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    I know a family who is fatherless because he blew all the family money on FX trading.
    He committed suicide. That's how the bad name occurs.
     
  5. Value Collector

    Value Collector Have courage, and be kind.

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    That's terrible.

    Unfortunately trading is seen as easy money by new entrants, You can see this when a lot of new people come to threads here keen to chase the "high returns" they can get from trading, They often seem disgusted at the idea of having to tie up their money for 3 years in an investment operation earning 10 - 15%pa.

    Unfortunately, this leads a lot of people into the gambling mindset, In my opinion the vast majority of people would get better results through an investment approach.
     
  6. tech/a

    tech/a No Ordinary Duck

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    I'm afraid I'm not so sympathetic.

    How selfish to leave behind your mess for your family to be affected then to clean up.
    What a waste of the gift of life!
    Learning nothing.
     
  7. Julia

    Julia In Memoriam

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    A lot of the negative bias seems to be based on misapprehension. As already noted, that it's all about gambling, just taking a thoughtless punt on some speccie that's gunna be the next big thing. And because that does happen, it gets conflated into that being the essential nature of the stock market.

    If you instead were to say to someone "do you think Woolworths is a good business? do you think it's profitable?", and inevitably the reply would be "yes, of course", and then you'd ask them "well, don't you think it might be worth having a small share of the profits of that business", a look of dawning realisation emerges.

    So I'd suggest the negativity is based largely on ignorance. That in turn may well have caused some of the true disasters we've seen, and so it becomes a self-reinforcing philosophy.

    And then there's greed, which is a whole other subject.
     
  8. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    That's my attitude too tech/a. He wrote a letter saying he had failed the family and didn't derserve them. How selfish. Now the poor boy hasn't a Dad and the wife has to start again on her own. I have always though of suicide as gutless.
     
  9. McLovin

    McLovin

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  10. Wysiwyg

    Wysiwyg Everyone wants money

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    Yes the right place at the right time can multiply a bank roll quickly. I see stocks, fx, indices move to allow that to happen so believe I can do it again and again.
    Done it and gave it all back again. How silly of me.:frown:
     
  11. Smurf1976

    Smurf1976

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    Share trading and indeed any form of investment requires at least some knowledge in order to be profitable over the long term. Even just putting your money in a term deposit requires a small amount of effort to get it right - comparing deposits and banks etc and then you have to actually transfer the money.

    Same with anything, some will make the effort and some choose not to. That's not just true with investing, it's the same with anything in life. Personal fitness doesn't come without an understanding of what you need to do, and then putting in the effort to actually do it. Same with careers - anything from a plumber to an accountant requires that you make some effort to get there. And of course there are good plumbers and there are dud plumbers around too.

    The "can't be bothered" factor exists in all fields, the only real difference with trading being that many do see it as a "get rich quick" opportunity and make huge mistakes with a gambling mindset. That the barrier to entry is minimal is a major contributing factor I think. Anyone can open a brokerage account and start trading whereas becoming a lawyer, electrician or something like that has much higher barriers to entry since a formal qualification is required in order to legally work in these fields.

    Those seeking to "get rich quick" will naturally tend toward things with low barriers to entry and the promise of huge returns. Short of stumbling across a gold nugget somewhere in the bush, trading shares pretty much tops the list in terms of being (1) easily accessible and (2) practically everyone knows that the share market exists and that shares can be bought and sold by individuals. It's an absolute magnet for such people, and they'll inevitably make huge blunders and give the whole thing a bad name. :2twocents
     
  12. Julia

    Julia In Memoriam

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  13. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    Few things:

    1. Prospect Theory. Wins of a $1000 don't feel as good as how much the mirror (losing $1000) feel bad. But, when you lose enough, the pain just gets dull and people will gamble to try to make up for losses because they are experiencing 'get-even-itis'. There are certain strategies discussed in this forum that are essentially doing this.

    2. Lottery Effect. When it comes to the notion of really high pay-offs with low probability, we don't think in terms of expectation. We just think in terms of the possibility and pay-up. Why do we buy lottery tickets when the pay-offs are so poor in terms of expectation? It has been found that when things are down, people take more lottery style positions trying to get themselves out of their life problems.

    3. Illusion of control. A false belief that you actually control the outcome. In casinos, people roll gently when they want a low number in Craps. They will roll vigorously when they want a high number. In this forum, there is material discussion on very high returns which can be achieved via a 12 step program. Do that and riches are yours.

    4. Bright shining lights attract our attention and hold it. Take a look at a poker machine...now take a look at the trading portal for some FX trading front end. Both flash a lot making you think something meaningful is going on, all the while exuding 'look at me, look at me!' When coupled with periodic dopamine hits, especially when your brain is wired to find that particularly strong, and you get addiction of a very serious kind. It can be as addictive as cocaine. It is the same chemical pathway.

    FFX (and certain other types of) trading plays to all of the above. Most entrants are terminal investors and the platforms and account managers are just there to keep them happy until the accounts are drained whilst attracting the next cohort.

    The suicide is tragic on all fronts. But I suggest finding out more about what happens in brain chemistry when subject to above and then hitting the floor before regarding it as a cheap out. Other things are often going on, few of them rational. This case is not isolated.

    Speculation and trading can have a bad name because it has the character of casinos and plays directly to known and verifiable human bias. However, this game proceeds without the protection of anti-harm provisions. Sometimes people lose more than money.
     
  14. Faramir

    Faramir Very New Investor

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    My parents have a dislike of the stock market. Actually my Dad has a complete hatred of the stock market. He has never brought shares in his life but he thinks anyone else that does it will destroy three generations of hard work and savings. He thinks people who put money into the stock will eventually steal from their love ones and friends so that they can put more money into the stock market. He has a severe hatred towards gamblers but he thinks the stock market was worst than poker machines. He worked in a soccer club and every night he watch people pour heaps into poker machines or make bets. Yet somehow the stock market is MUCH MORE WORST! This is what I grew up with. It poisoned my attitude towards the stock market. I can't understand why he has this intense hatred towards the stock market. Don't tell me that I am sounding extreme. Even I can't believe what I am writing. Dad worked hard all of his life and he hates money being wasted or risked.

    My main regret is not to educate myself when I was younger and make some wise investments. I would have shown Dad (while he was alive) that I could be successful with the stock market. In his final years, I was too busy, distracted with lots of hospital and doctors trips that I missed great opportunities like GFC. Not much I can do, I still owe him a lot, especially for the sacrifices he made. Mum would of have heaps more if Dad had a different attitude. At least he saved very hard and left mum something. He didn't understand that it was possible to beat inflation.

    Most people just have ignorance. They didn't have to overcome the attitudes of those who raised them stating that the stock market is full of evil people.
     
  15. Faramir

    Faramir Very New Investor

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    When people suffer depression, sometimes they commit suicide because they think the 'selfish' thing to do is to stay alive and make life worst for their families. They think their families would be better off if the individual wipe himself herself from existence. Sounds illogical but that is how they sometimes think. They actually think everyone else around them would be better off if they stopped existing. (That's not all suicides but some did say those were their thoughts when they were thinking about.) Suicide is such a complex topic that I should not discuss it here. Beyond Blue is probably a better place to visit.

    As for the one who left his family behind, maybe if he never started trading, other 'cause' or trigger would have caused it??? Who knows??

    I find the stock market complex. I try to put some effort in. Most people due to tine constraints, etc. That is why they are biased against it (as stated above.)
     
  16. Value Collector

    Value Collector Have courage, and be kind.

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    A lot of people over complicate the market, and over think it. The simplest way is just to think of it as a place to buy little pieces of companies. Focus on finding good companies you understand and then buy them at prices which seem fair based on the earnings they produce. If you focus on that it's pretty simple.

    If time is a problem, flick the autopilot switch and just buy all the companies via an index.
     
  17. Klogg

    Klogg

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    Kahneman FTW :D

    Might also add Loss Aversion and the Endowment Effect in there, as they're definitely relevant.
     
  18. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    Pity Tversky didn't live long enough to collect his Nobel too.

    Not so much loss aversion (don't like taking a loss) as disposition effect (will not realise a loss [or stop trading despite incurring losses]...because it's not real until you sell it [or stop trading entirely]).

    As to endowment effect, what colour is your mug? How much?
     
  19. Julia

    Julia In Memoriam

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    +1.
     
  20. Leiothrix

    Leiothrix

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    So what you're saying is that people shouldn't have bodily autonomy, and must live in case it upsets you or someone else? That's pretty selfish.

    In either case, if mental illness is involved you can't ascribe their actions to a rational thought process.

    Back on topic -- people are just scared of what they don't understand. Generally they won't seek better understanding, and often even after correcting their understanding their fears will remain.
     
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