Investors Beware The Halo Effect

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Beware The Halo Effect. In India, majority of investors are prey to this behavior bias of Halo Effect when selecting the stock or industry to invest in their hard earned money in expectation of making quick money in coming months or years.

‘Halo Effect’ denotes the tendency where the perception about something is based on a single information or variable rather than considering the overall picture.

As an Investor, every time you hear somebody say that “ABC Limited is a good stock to buy because it is a Growth Stock.” or “XYC Limited is a good stock to buy because it is an infrastructure company”, you can say that it is an example of the halo effect. 

Because after all, a good investment or a stock or business you should own has to have many more factors to make it investment-worthy like in terms of management quality, valuation of company, business model etc. 

So, If you are also prey of the halo effect when it comes to investing in stock market then beware of judging stock on a singular piece of information and Be Beware The Halo Effect.

References

  1. Value Investing & Behavioral Finance by Mr. Parag Parikh
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