What is negativity bias?
Negativity bias is when bad events have a stronger impact on your reasoning and your decisions than positive actions or events. Although this can help keep you safe from poor investment choices, as an investor it can cost you money if negativity results in you missing out on opportunities.
Where have you heard about negativity bias?
You may have heard of negativity bias in connection with investors pulling their money out of a particular stock after one negative event, only for that stock to continue to perform because positive factors exert more influence.
What you need to know about negativity bias...
Negativity bias can seriously affect the way you invest, as it can lead to risk-averse behaviour that also ends up avoiding reward. It's important to reflect on your own biases and attempt to see any past positive developments in the same light as the negative ones, so your decisions are balanced.
It's also important to remember that market sentiment and the general trading environment can also be subject to negativity bias.