Reactive Investing: How this strategy can help you unlock profits beyond targets
Setting targets is undoubtedly a good practice, but rigid adherence can sometimes lead to missed opportunities. Exiting from the investment solely because it has achieved your pre-decided target is like declaring the batsman just because he scored the expected century but the fact is he is in good form and might score double or triple century in the same inning. Similarly, cutting profits prematurely could result in missing out on potential multi-baggers. This behavior often stems from a fear of losing gains, as explained by the Prospect Theory by Daniel Kahneman and Amos Tversky. Investors are naturally inclined to avoid losses over seeking larger gains, but overcoming this bias is critical for maximizing returns.
While intuition can offer speed, critical thinking ensures precision. Investors should rely on analytical reasoning for their entry and exit strategies in the market. A reactive yet calculated approach can help maximize returns, ensuring that decisions are rooted in logic rather than impulse. Reactive investing allows you to adjust your strategy in response to market fluctuations, ensuring you stay aligned with changing conditions.
Here are the key points investors should keep in mind to make a reactive exit in investment.
Leveraging Market Overreactions
Identify when markets overreact to news whether negative or positive. For example, a stock might dip due to temporary setbacks but has strong fundamentals to recover. React by buying the dip rather than exiting in such situations to turb market
