First, recognise that the market, like Skinners food delivery system, operates largely independently of our personal rituals and beliefs

Don't be a pigeon while investing: Stock market superstitions can be counterproductive, how to avoid them Second, embrace systematic, evidence-based approach to investing. Regular SIP investments, proper asset allocation, and periodic rebalancing might not be as exciting as discovering the markets ‘secret code, but they have proven far more reliable

Dhirendra Kumar

CEO, Value Research

If pigeons can develop superstitions in the face of random events, surely investors can do so too. In 1948, renowned behavioural scientist, B.F. Skinner, conducted a fascinating experiment with pigeons. Nearly 76 years later, it offers some insights into investor behaviour, at least to me. Instead of rewarding the birds for specific actions, Skinner randomly gave them food. The results were remarkable: six out of eight pigeons developed elaborate ‘superstitious’ behaviours, convinced that their peculiar actions somehow triggered food delivery.

One pigeon would spin counter clockwise around its cage two or three times. Another repeatedly thrust its head in a corner of the cage. A third developed an odd tossing motion as if lifting an invisible bar with its head. Two others swung their heads from side to side in a pendulum motion. Each bird, in its own way, had created a ritual it believed would bring rewards.

If this reminds you of investor behaviour during market volatility, you’re not alone. Like Skinner’s pigeons, investors often develop their own ‘rituals’ and superstitions about what drives market success. Watch financial news and you’ll see endless attempts to connect market movement to everything from election results to cricket matches. Monitor any investor discussion group and you’ll find elaborate theories on technical patterns, planetary alignments, or numerical sequences that predict market movements.

The parallels are uncanny. Just as the pigeons performed their rituals regardless of whether they influenced food delivery, investors often cling to strategies without real connection to market outcomes. A trader might convince himself that the market always rallies on Tuesdays or that a particular technical pattern guarantees price reversal. Another might believe that checking prices five times daily is somehow lucky.

The random reinforcement that created these behaviours in pigeons is precisely what makes the stock market a fertile ground for superstitious thinking. Sometimes, these ‘rituals’ appear to work, just as pigeons occasionally receive food right after performing their chosen action. When a particular analysis or trading strategy leads to a profitable trade, it reinforces the belief in that approach, even if the success is purely coincidental. This phenomenon becomes particularly dangerous in bull markets, when rising prices can make almost any strategy appear successful. Investors might attribute their gains to their morning meditation routine, lucky trading shirt, or complex chart patterns. The reality is that they are simply benefitting from the rising tide that’s lifting all boats.

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The most insidious aspect of these market superstitions is how they persist despite evidence to the contrary. Just as Skinner’s pigeons continued their behaviour despite the random nature of rewards, investors often double down on failed strategies, convinced that they just need to execute these more precisely or with greater conviction.

What’s the antidote to this human tendency? First, recognise that the market, like Skinner’s food delivery system, operates largely independently of our personal rituals and beliefs. Second, embrace systematic, evidence-based approach to investing. Regular SIP investments, asset allocation, and periodic rebalancing might not be as exciting as discovering the market’s ‘secret code’, but they’ve proven far more reliable.

Consider the recent market volatility following the state elections. The investors who attributed the subsequent rally to their analysis or trading strategy are like pigeons spinning in their cages, confusing correlation with causation. The market moves for countless reasons, many of which are only apparent in hindsight. The most successful investors have freed themselves from such superstitious thinking. They understand that long-term investing success comes not from ritualistic behaviours or perfectly timing the market movements, but from maintaining discipline through market cycles, diversifying appropriately, and letting the power of compounding work its magic.

The greatest lesson from Skinner’s pigeons is recognising our susceptibility to superstition. The next time you find yourself convinced that you’ve discovered a foolproof market pattern or guaranteed trading strategy, remember those pigeons, earnestly performing their rituals for random rewards. Like Skinner’s food dispenser, the market operates as per its own schedule, regardless of how often we spin in our cages.

The Author is CEO, VALUE RESEARCH
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances