Tame these behavioural biases to navigate stock market swings

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Mint takes a look at the key biases that investors to be aware of. Survivorship bias focuses only on successful performers, ignoring failures and leading to skewed conclusions. This can distort investment analysis by considering only surviving funds or companies, creating a false impression of overall performance.

"Simply looking at Sensex returns doesn't reveal how its constituents have fared over the years. Even blue-chip Sensex stocks have faced steep corrections, been removed from the index, and faced bankruptcy. People often focus only on the survivors, overlooking those that didn't make it," pointed out Devina Mehra, MD and chairperson of First Global.

Within the mutual fund space, several small-cap funds have been merged with other funds of the same fund house, due to their poor performance. Confirmation bias is the tendency to seek out information that confirms one's pre-existing beliefs while ignoring or discounting contradictory evidence. This can lead to skewed decision-making, reinforcing existing viewpoints.

“Confirmation bias occurs when people selectively collect data and focus on facts that support their already-decided views. They rationalize any contradictory data or arguments to fit their perspective," said Nimesh Chandan, chief investment officer of Bajaj Finserv AMC. "People often look only for data that confirm their view, for example picking up a trivial news item that favours their investment decisions," he added.

Anchoring bias is the tendency to rely too heavily on the first piece of information encountered (the "anchor") when making decisions. This can lead investors to make judgments based on initial values rather than adjusting adequately for subsequent information. For example, the anchor