Mutual and other Funds

71. '' There are pitfalls that can distort investors' thinking and the choices they make.'' Explain

Ans: There are two pitfalls that can distort investors' thinking and the choices they make.

Projecting the present into the future: Too often , we tend to extrapolate into the future by giving too much weightage to current or past events.If things are going well now , we assume they always will and become blind to any indicators , which may point otherwise.

Letting the herd mentality take us over: We get influenced by what is around us.The more we see people around us selling in response to bad news, the more we are convinced about how ' bad' the situation is. The reason is that human nature makes it difficult to distance one's self from the 'prevailing wisdom' and stand apart from the crowd .But if we think calmly , weigh the evidence and look upon the market's history , we would recognize that the market would experience a turnaround someday and present many profit-making opportunities.