[Summary]
The benefit of knowing the endowment effect is not that it guarantees profits, but that it makes it easier to organize the materials you need to look at.
The benefit of knowing the endowment effect is not that it guarantees profits, but that it makes it easier to organize the materials you need to look at.
In actual investment, the first step is to think about whether you can buy new stocks you already own. However, we cannot overlook the fact that it is easy to become attached to the stocks you should sell.
In this article, we will organize the benefits of knowing the ownership effect not as "knowledge" but as a procedure to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, distinguish by the benefits of knowing the endowment effect.
When looking at the benefits of knowing the endowment effect, first determine what you want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. The benefit of knowing the endowment effect is not enough to make a decision. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Don't overestimate the benefits of knowing the endowment effect.
If you want to look at the benefits of knowing the endowment effect, first make a narrow premise. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
Checking the following points will make things a lot easier.
| Axis to check | Looking at the benefits of knowing the ownership effect |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
The benefits of knowing the endowment effect can cause you to stumble, not only when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Decide first what you can see with the benefit of knowing the endowment effect.
- Differentiate between conditions that bring about benefits and conditions that do not.
- When expectations are too high, test with a small amount
- Write down the terms of withdrawal before considering profits.
The important thing here is not to settle on a single correct answer based solely on the merits of knowing the endowment effect. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using the benefits of knowing the endowment effect as a basis for making an actual decision, check at least these five things.
- Can you explain in one sentence the purpose of looking at the benefits of knowing the endowment effect?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of confirming the benefits of knowing the endowment effect is not to act faster, but to reduce unnecessary judgment errors.
Summary
The advantage of knowing the ownership effect is that it is useful for organizing investment decisions. Even if you read it as an advantage, treating it as a stand-alone buy/sell signal will make your judgment difficult.
The points to keep in mind are as follows.
- Understand the ownership effect See the benefits Decide on the purpose first
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. The advantage of knowing the ownership effect is not to use it as a word to rush into judgment, but rather to treat it as a tool to pause before buying or selling.