Rationality is often sacrificed when in hot pursuit of  investments that seem to be too good a deal.Often blinded by emotions and misinformation,these pursuits always end up in deep disappointment.Fortunately,over the years,studies by psychologists on the subject of behavioral finance and several well documented failed investments provide us with great lessons and insights that should come in handy in our individual investment exploits.

Pyramid schemes

Pyramid schemes or Ponzi schemes if you like, have continued to rob gullible investors the world over billions of dollars. Kenyans, unluckily, have not been spared with the victims continuing to anguish in courts seeking legal intervention. What started as a simple investment  whose model involved putting in some money in a sketchy investment then looking for other like minded individuals willing to do the same ended up with poor Kenyans loosing lifetime savings that amounted to millions.Albeit the architects of such investments have gotten smart over the years by masking their schemes as valid businesses,investing in them should be avoidable.As someone looking to invest,exercise caution,when approached with such an investment always be on the look out for two things:the sustainability of the business model under which what you're about to put your money on is founded and the product they offer. Such schemes would normally have neither.

Lesson:Understand what you're putting your hard earned money on.

Stock market upsets

One of the most trusted investors,Warren Buffet, once said -Be fearful when others are greedy and greedy when others are fearful.This generally,can be taken as a warning against herd behavior that characterizes the mood amongst most investors in bull and bear markets that goes on to influence the positions they take. Behavioural finance describes it as being influenced by two things,the wrong judgement that a large group can't possibly be misinformed/wrong about an investment and that strong pressure to' fit in' and possibly not miss out on the next great investment.

True,everyone loves to be part of what is predicted to be the next great investment and this has never been well depicted by the rush to buy Safaricom shares during their listing at the NSE.Of course this ended in disappointment,since most followed the herd to their painful slaughter. A factor that is said to have greatly contributed to the mass exit from the stock market by retail investors over the last two years. The stock market is not just about buying stock blindly,a lot of understanding has to go into knowing  what exactly a stock market is,how money is made from it,what to look for in the company whose stock you're interested in and the risk involved.

Lesson: Don't go with the herd.If you have to,be informed.

  Real estate cons and speculation

It's costly to build a house today. A common joke amongst people servicing mortgage loans is that they'd need pain killers when the thought of how much gets deducted from their monthly income crosses their mind.Even more painful then should be having to watch your piece of real estate investment being demolished.Exactly what happened to the more than 3800 formal settlements that were constructed on airport land in Syokimau.Obviously most thought owning real estate  next to an airport should be worth a lot more in future,so prudence was not exercised.Though the incident is directly attributed to innocent kenyans falling victim to con artists,speculation played a huge part.Normally, when used the right way speculation can earn one good money from real estate or add a valuable asset to your investments but sometimes the buyer would end up with the risk of owning over valued property.

Lesson: speculation seeks to drive and profit from the herd,so the lesson here is a combination of the two above.