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Understanding these and other behavioral biases doesn’t just help avoid mistakes; it also opens up opportunities for profit by exploiting inefficiencies created by others’ biases.
For instance, value investing involves buying undervalued stocks that other investors overlook due to various biases like recency bias (overweighting recent events in decision-making) and availability bias (relying on immediate information rather than complete data). By understanding these biases, value investors can spot bargains that others miss.
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