What is the reason for real estates to flee from the stock market?/ What is the opinion of “behavioral finance” science?

According to Tejarat News, emotional reactions of shareholders towards market fluctuations are always known as one of the risks of the stock market, behavioral financial knowledge has a solution for this inevitable complication.

Mohammad Irfan Shahmohammadi: You wake up at 8 am, have breakfast and then go to your mobile or laptop. It is past 9 and now the market is trading. The market sign looks like an endless green field. Everyone is happy and there is no share that does not grow at least 2% a day. You feel like you are the best trader in the world, you know everything and everything is under your control. In your dreams, you see your dream profits that have provided you with all kinds of luxury items and activities. But finally the summer of 2019 comes and the market shows its other side: the sleeping bear of the market wakes up and starts pulling down the arrow of the stock index. Now your sweet dream is coming to an end and the index is falling. Now, real investors can be seen in large numbers selling their shares without a plan and exiting the market. Really, why are these people running away?

Real traders in a market can usually be considered as people who trade securities alone and away from the up-to-date teachings of the financial markets with the aim of obtaining relatively significant profits. They are usually easily influenced by their surroundings and overcome by their emotions in the market, and as a result, when the market starts to fall, instead of having a systematic exit plan and capital management to minimize losses, they herd. And they leave the market emotionally, and as a result, they form the majority of the losers in this market.

Therefore, the investigation of the behavior of this group of investors has been the focus of economists and psychologists to better understand the reasons for their noisy exit and their lack of trust in the market. We know that the main reason for investors’ exit is not getting enough profits or worse, significant losses, so by knowing the cause of their losses, we can justify their exit to an acceptable extent. Based on this, behavioral researches have provided the following reasons:

Dunning-Kruger effect: This work, which was discovered in 1999 by two researchers with the same name, indicates that newcomers to a field who have little skill and knowledge usually tend to overestimate their abilities and skills in dealing with the uncertainties of a problem. According to this work, real people come to the false belief that the market is under their control and they can always profit from it, which results in dangerous risks and unprofitable behaviors in the market. Following these behaviors, when the market starts to fall, due to not having enough knowledge to manage the loss, they have suffered heavy damage, which provides a high motivation for them to completely exit the capital market and not trust it.

Uncertain reward in terms of time and amount: In the literature of behavioral psychology, there is a phenomenon called actor conditioning, during which a behavior can be strengthened by avoiding punishment and seeking reward. Based on this approach, there are basically four types of methods to create a behavior in an organism:
1. Positive reinforcement, which means giving a reward in case of performing a specific action.
2. Negative reinforcement, which means removing a source of annoyance if the desired behavior is performed.
3. Negative punishment through which something is taken from the living being if the desired behavior is performed; Like depriving your child of his favorite game if he disobeys your command.
4. Positive punishment that is done to an animal in case of a certain behavior; Like giving an electric shock to a mouse if it performs a certain action.

In the meantime, observations show that reward or reinforcement has a greater effect than punishment in changing the behavior of an organism. Also, the reward may be given to the living being with a periodic period or certain or unknown amounts, and therefore, the most effective reward on the living being’s behavior is a reward whose time and amount are unpredictable.

According to the cases mentioned in this theory, if we consider “investing in the market” as a general behavior, it can be seen that when the whole market is bullish, the real investor will not get his return from buying his shares due to random behavior and He estimates the unpredictability of the market, and on the other hand, he does not set a specific time for his exit from a share or the entire market, and in his mind there is only some kind of big reward in the future. Accordingly, following this reward, he continues his presence in an extreme and unplanned manner until finally, when the market declines, he sees a significant loss, and this loss is the prelude to his exit from the market.

Imitation effect (bandwagon effect): This effect, which is classified in the set of cognitive biases, indicates that people tend to do actions that a significant number of other people also do, and thus everyone gets on the same bandwagon. When the real investors were hurt in the Iranian stock exchange, a strong trend was formed among some of them who wanted to exit the market, and in the meantime, another group of investors started to believe that everyone is exiting the market. have sold their shares. On the other hand, the rise of cryptocurrencies in recent years and the normal people of the society being drawn to this direction and dreaming of getting imaginary profits of several percent, has created another current that has tempted real investors to leave stocks and enter this market. .

According to the things mentioned above, it can be concluded that a real investor in a stock market is generally not looking for bitter realities and methods of facing them with long-term activity, but following a bunch of dreams and sweet words that come from It is a great benefit for him to speak without any trouble and planning, and the psychological structure of a person in such a situation follows certain reactions and approaches, where the three factors of false self-confidence, dream reward and matching the congregation are explained here for the esteemed reader. Based on this, it is possible to give this strong advice to all the activists in this field that the activity in this market upon entering requires building a kind of mindset for capital management and dealing with various temptations for risky and harmful behaviors, and achieving such a mindset is a necessary condition for Conquering the peaks of success will be in this field. A true activist in this market should always remember that the stock market is like a turbulent and turbulent ocean that will eventually lead raw and inexperienced sailors to death.