Behavioral Considerations in Active Equity Investing

In recent years, the relationship between behavioral finance and active equity investing has gained significant traction among portfolio managers. The tendency for investors to exhibit biases such as overconfidence, loss aversion, and herd behavior can significantly impact stock selection and portfolio performance.

You are the lead portfolio manager at an active equity fund that has been underperforming its benchmark index. As part of your analysis, you recognize that behavioral biases may be affecting your team's investment decisions.

Discuss how these behavioral considerations can influence the active investment process. Include specific examples of biases and illustrate how they might affect stock selection, portfolio construction, and performance evaluation. Additionally, provide strategies that your team could implement to mitigate these biases and enhance investment decision-making.