Psychological Traps 1. Anchoring Trap First, there is the so-called anchoring trap, which refers to an over-reliance on what one originally thinks. Imagine betting on a boxing match and choosing the fighter purely by who has thrown the most punches in their last five fights. You may come out all right by picking the statistically more-active fighter, but the fighter with the least punches may have won five bouts by first-round knockouts. Clearly, any metric can become meaningless when it is taken out of context. For instance, if you think of a certain company as successful, you may be too confident that its stocks are a good bet. This preconception may be totally incorrect in the prevailing situation or at some point in the future. Take, for example, electronics retailer Radio Shack. Once a thriving seller of personal electronics and gadgets in the 1980s and 1990s, the chain was crushed by online retailers such as Amazon (AMZN). Those trapped in the perception that Radio Shack was there to stay lost a lot of money as the company filed for bankruptcy multiple times and shrinking from its heyday size of 7,300 stores to 70 outlets by the end of 2017.1 In order to avoid this trap, you need to remain flexible in your thinking and open to new sources of information, while understanding the reality that any company can be here today and gone tomorrow. Any manager can disappear too, for that matter. #2. Sunk Cost Trap gold signals The sunk cost trap is just as dangerous. This is about psychologically (but not in reality) protecting your previous choices or decisions — which is often disastrous for your investments. It is truly hard to take a loss and/or accept that you made the wrong choices or allowed someone else to make them for you. But if your investment is no good, or sinking fast, the sooner you get out of it and into something more promising, the better. best signals If you clung to stocks that you bought in 1999 at the height of the dot.com boom, you would have