[Summary]
The gambler's fallacy is the psychology of unwarranted expectations of repercussions of successive outcomes.
What is most likely to result in a gambler's fallacy is not the lack of knowledge itself, but the situation in which a hasty decision is later justified.
In actual investing, the first step is to consider statistics and independent events separately. However, we cannot overlook the fact that it is easy to buy as it will only go up soon.
In this article, we will organize the Gambler's Fallacy not as "knowledge" but as a step to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First of all, distinguish by gambler's fallacy.
When looking at the gambler's fallacy, first separate 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 gambler's fallacy is not the only factor in making 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.
Situations where you are likely to fail due to the gambler's fallacy
If we look at the gambler's fallacy as a pattern of failure, we first need to 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 | What we see in the gambler's fallacy |
|---|---|
| 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 gambler's fallacy doesn't only stumble when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Don't decide to buy or sell the moment you see the gambler's fallacy.
- Don't mix your own holding period with a time frame that fits the gambler's fallacy.
- Don't increase your position to recoup your losses
- Don't make a decision just based on SNS or rankings.
The important thing here is not to rely solely on the gambler's fallacy as the correct answer. 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 Gambler's Fallacy as a basis for making an actual decision, check at least these five things.
- Can you explain in one sentence the purpose of watching Gambler's Fallacy?
- 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 reviewing the Gambler's Fallacy is not to make you act faster, but to reduce unnecessary errors in judgment.
Summary
The Gambler's Fallacy is a resource for organizing your investment decisions. Even if you read it as a failure pattern, treating it as a standalone buy/sell signal will lead to poor judgment.
The points to keep in mind are as follows.
- Decide the purpose of looking at the gambler's fallacy 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. It is realistic to treat the gambler's fallacy as a tool to pause before buying or selling, rather than a word that forces you to rush into judgment.