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Three investment decision making mistakes to avoid in uncertain times
Especially during uncertainty, it is essential to concentrate on your long term investment goals. Here are 3 decision making pitfalls you must be wary of.
Noise: Overcoming the flaw in human judgment in investing
Wherever there is human judgment, there is noise. When investors invest, they are making a judgment. Discover a way to help eliminate the noise.
Expert’s Choice: Two mistakes in uncertain times
Behavioural economists and psychologists have shown that people, even experts in their field, have poor track records of making proper assessments in times of uncertainty.
Markets have been responding to every economic release and central bank reaction, or suggestion of reaction since the Fed stated it would “retire” the word ‘transitory’ when describing inflation. Since then, it has been difficult to accurately ‘anchor’ risks. It’s almost impossible to adjust with so much information and misinformation being circulated. It’s also likely we are making decisions based on small samples. The NASDAQ composite peaked in November 2021, since then it has fallen over 20%, which puts it in bear market territory.
Expert’s Choice: Avoiding the losses and losing the wins
Since the 18th century, the foundation of economic theory was that humans assessed losses and gains equally. It has only been in the last 50 years, or so, that behavioural economists and psychologists have proven this is not the case.
This fundamental flaw in economic theory has been exposed because: the old theory fails to allow for different reference, or starting, points; humans are more sensitive to reductions in wealth than increases; and feelings such as regret were not considered.
Behavioural economist Richard Thaler and psychologist Daniel Kahneman have both been awarded Nobel prizes for their research into the behaviour and decision-making processes of humans and the role of these processes in understanding the broader field of economics. Understanding their findings about reference points, loss aversion and regret can help the investment industry counsel their clients through one of the most turbulent markets in history.
The lesson investors should heed from 2020
In 2020 the Australian share market has experienced:
- Its best month since 1988
- Its second best month since 1988
- Its worst month since 1987
The lesson for investors is simple.
Conflicts and markets: Investor considerations
The Middle East has become a new battleground of conflict, and the effects of both weigh on markets. Understand the lessons for investors from past and current crises.
The recent example of investors’ aversion to losses
It's important for investors to understand that despite our best intentions, sometimes we don't always act in our best 'economic' interest.
Reducing loss aversion and regret in investing
The fundamental flaws in economic theory have been exposed. During turbulent times, how can we shift our investor attitude to reduce loss aversion and regret?
How to beat the bear market blues
Bear markets are the ultimate behavioural test for investors; the outcome of this test says more about their likelihood of success in building wealth over the long run than does the direction of financial markets. Investors will either stay smart, or yield to emotion, which can ruin the potential for gains.
Navigating the ‘infodemic’
In the early days of an outbreak there is always uncertainty. An epidemic like the coronavirus, with potential to become a global pandemic, has shaken us all. But history shows pandemics can often just a sniffle in investment markets.