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The Intelligent Option Investor: Applying Value Investing to the World of Options by Erik Kobayashi-Solomon

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Chapter 6

UNDERSTANDING AND OVERCOMING INVESTING PITFALLS

You have seen that valuation is not a difficult thing. It requires understanding of a few key relationships, but it is basically a straightforward process most of the time.

Why then, do so many investors have such a hard time doing it well?

The main reason, I am sorry to say, is our nature as human beings and the weaknesses of our nature. This chapter discusses two facets of that—behavioral biases and structural impediments. The first facet—behavioral biases—involves how we as human beings try to figure out complex things and get caught in the process of doing so. The second facet—structural impediments—speaks about how we investors tend to buy—lock, stock, and barrel—into a game designed ...

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