"Particularly optimistic industries, particularly optimistic companies, but in the end, they lost money!" How many investors have had the same or similar experiences, and in fact, there are investors' common "human weaknesses" at play here.

What are some of the "human weaknesses" that investors often commit? How should we overcome or avoid them?

According to behavioral finance, they are divided into two major categories: cognitive errors and emotional biases. Cognitive errors belong to the cognitive level, and if recognized, they are relatively easy to correct. Emotional biases are typical human weaknesses and are relatively difficult to correct.

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The first category, cognitive errors, has three main directions: confirmation bias, illusion of control, and availability bias.

Confirmation bias, also known as stock love bias, is the particular optimism for a certain stock or a certain type of stock, even "falling in love" with it, which ultimately leads to an overly concentrated position and excessive exposure to risk. The correct approach is: when we are particularly optimistic about a company or an industry, we should try to find some unfavorable factors of the company or industry, and deal with these negative information rationally, to cool down the particularly optimistic stocks or industries.The illusion of control refers to the false belief that one has control over "investing in stocks," thinking that "everything in the stock market is within my grasp." Behaviorally, this usually manifests as excessive trading. The mistake made here is essentially "underestimating the enemy," believing oneself to be a "stock market god," leading to over-trading. The correct approach is to seek out opinions that are contrary to your own, diversify your investment portfolio reasonably, and set a reasonable trading frequency.

Availability bias is the tendency to make investment decisions based only on information that is easily accessible or close at hand, focusing only on one's own small circle, and showing laziness or indifference to further explore other investment opportunities, which can lead to the loss of many investment opportunities (reduce the investment opportunity set). The correct approach is to plan and implement professional portfolio analysis, step out of one's comfort zone, and appropriately explore investment opportunities in other fields.

The second major category is emotional bias, which has three main sub-directions: loss aversion bias, overconfidence bias, and regret aversion bias.

Loss aversion bias is the inability to tolerate losses in the stocks one has purchased. Once a loss occurs, even if the company's fundamentals deteriorate, the stock is left in the account without attention, not wanting to turn "paper losses" into "actual losses." On the contrary, once a profit is made, the stock is sold immediately, and the account often only holds stocks with paper losses (unbalanced account), which is a typical mindset of wanting to win but fearing to lose. The correct approach is to establish an appropriate stop-loss mechanism and view the high risks of investment rationally.

Overconfidence bias is the reliance on intuition when making investment decisions, underestimating risks and overestimating returns, believing that the risks of investing are just a matter of course, while the potential returns are high. The correct approach is to regularly record and summarize investment performance, and seek communication and advice from professionals.The regret aversion bias refers to the concern that one's investment decisions may be wrong and lead to regret. Even if there are stocks in the portfolio that have made significant profits, you worry that if you sell the stocks and they continue to rise, you will regret it. Therefore, you tend to hold onto the stocks for a long time, which is often a long-term strategy. At the same time, if others buy stocks, you want to follow suit, fearing that you will regret not making money while others do. This is a typical herd mentality. The correct approach is to regularly review your positions and provide reasonable and objective explanations for your holdings. If there is no reasonable explanation for holding, timely decisions should be made.

It can be seen that if it is a cognitive bias, it should be possible to change through our efforts. However, if it is an emotional bias, it often involves the weaknesses of human nature, and the difficulty of correction is often greater. It is necessary to find a suitable method in combination with oneself.