You let the computer pick stocks for you. But not randomly...based on a certain set of conditions (like high yield or low risk, etc.), you’re likely to get a bunch of stocks that share more than just the characteristics of being high yield or low risk. They’ll also likely have other things in common, like being in the same industry or being companies that have similar business profiles or management philosophies.
Attribute bias is the tendency for those auto-selected securities to have more in common than you asked for. Let’s say you decide to use the built-in tool on your trading software that gathers a collection of securities that fit a certain profile you’re interested in (high-earning or stable or low risk, etc.). The bots inside your computer return a whole list that fit the profile to a T. When you go to buy some of those securities, you may be getting more than just a group of stocks that all fit the profile of "stable." You might be getting stable stocks that are all in tech or maybe agriculture or companies that have similar leadership styles.
It isn’t necessarily a bad thing, but it can lead to an un-diversified portfolio.
Related or Semi-related Video
Finance: What is position trading?4 Views
Finance a la shmoop what are position trading and swing trading? all right well
in the kamasutra there lives a kind of give-and-take as the oh wait that's a [Man discussing karmasutra]
different position trading and that's something else sorry this one the way
more boring one refers more or less to the duration in which an investor takes
a position in a given security yes not nearly as fun so duration a megatrend is
a long term trend that is big and fat and wide and can last decades like the [S&P 500 graph appears]
advent of the internet a given market like a bear or a bull last a few years
and change and things that are intermediate term like a few months to
maybe a year are where position trading comes in like a prognosticator might [Knights carrying Ned Stark]
give convincing data to a hedge fund that this winter will be much colder in
high population areas than was previously predicted so he wants to
short gas futures exposed to those areas and from the next six months that would
be a position trade short gas.. kind of like gas X only different...So [Woman letting off gas]
that's position trading where you're thinking about a couple of quarters in
the future for a given investment and if you think about the original position we
proffered if the players involved are good well it can last for an hour maybe [Man exiting a restroom]
more now put yourself on a swing set well one swing from peak to trough lasts
only seconds but that's swing trading position trading lasts months whereas
swing trading lasts days..There's a shock from a bomb having gone off in the [Explosion occurs]
middle east and for three days oil prices spiked with the world holding its
breath thinking that this is the beginning of the end and that more bombs
a'la Dr. Strangelove will come in other areas but then the swing trader might [Dr Strangelove on a rocket]
make a bet that this bomb was an isolated incident a one-off or that in
fact the headline was misspelled courtesy of the poorly schooled
journalist who wrote it and instead it was supposed to be this headline so in
those three days oil prices fall back to about where they were and the swing [Oil prices decrease]
cycle is complete in our next video
maybe we'll get into a different kind of swing...[Do not disturb sign appears on door]
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