Glossary of Investment Analysis Terms & Definitions

4.4

icon icon

1. Access bias: translates perceptions colored by personal experiences that represent only a fraction of the complete economic reality. This hampers critical thinking and as a result, the validity of an individual's decision.

2. Relativity bias: when investors focus on a single aspect of buying stock to the exclusion of all other considerations. 

3. Relative metrics: involve quantitative measures that are either translated or mapped to the priorities of leadership. 

4. Volatility: is a reflection of the degree to which price moves.

5. Denial: is a defense mechanism which involves a refusal to accept reality, thus blocking external events from awareness.

6. Sunk cost fallacy: means that we are making irrational decisions because we are factoring in influences other than the current alternative.

7. Recovery bias: An individual is less likely to buy a stock if it’s seen as risky with the potential for a loss of money, even though the reward potential is high. 

8. Decision making: is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.

9. Loss aversion: is the tendency to prefer avoiding losses to acquiring equivalent gains.

10. Survivorship bias: is the tendency to view the performance of existing stocks or funds in the market as a representative comprehensive sample without regarding those that have gone bust. 

 

11. Trading: is the exchange of goods and services amongst two entities. It is the basic principle which forms the core of all economic societies and financial activities. 

12. Social proof: is when people follow the actions of others in an attempt to reflect the “correct” behaviour for a given situation. 

13. Financial planning: is a step-by-step approach to control your income, expenses and investments such that your money can be managed and your goals are achieved.

14. Rally: refers to a period of continuous increase in the prices of stocks, indexes or bonds.

15. Trend-reversals: A reversal is a change in the price direction of an asset. A reversal can occur to the upside or downside.

16. Hindsight bias: is a psychological phenomenon in which one becomes convinced that one accurately predicted an event before it occurred.

17. Intrinsic value: refers to the perception of a stock’s true value, based on all aspects of the business and may or may not coincide with the current market value.

18. Metacognitive: When we can easily understand how or why an event happened, that event can seem like it was easily foreseeable.

19. Influence bias: is when different outside factors that may cause an individual to think or act in a particular way. Specifically, this is concerned with how individuals choose particular patterns of behavior in response to the people, groups or societal norms that surround them.

20. Overconfidence bias: Investors demonstrate overconfidence bias by holding an irrational belief within the superiority of their knowledge and skills. It's also referred to as the illusion of data bias. 

How would you rate this chapter?

Comments (0)

Add Comment

Ready To Trade? Start with

logo
Open an account