Be prepared: save for a rainy day
One thing we do not spend enough time thinking about is putting money aside for emergencies. Most of us think we are immune to bad luck. That is part of human nature. Human nature or not, it is not very practical. Emergency funds, as part of your financial strategy, gives you a buffer when bad […]
Investors’ human nature leans towards pessimism
Why do investors often think their investments perform worse than they actually do? This is not a rhetorical question. It does happen. I have had many conversations with investors who are discouraged about their investment performance. Then, when they review the return on investment details, they are relieved and impressed. I am not aware of […]
Behavioural finance and the illogic of ‘mental accounting’
This column is the third discussion in the three-part series on behavioural finance, dealing with the pitfalls of human behaviour and investing. We all invest with confidence and enthusiasm and no matter how diligent we attempt to be, human behaviour gets in the way and causes us to make “human” mistakes. Most investors realize how […]
Behavioural finance and risk tolerance
This week’s column will continue the discussion on behavioural finance. Specifically, how individual investors overestimate their ability to assume risk. Another way of introducing the topic is suggesting human ego interferes with logical decision-making processes. Financial theory suggests investors are rational and they collect and analyze information in an unbiased logical way. Apparently this is […]
Behavioural finance’s role in investment decisions
Human psychology plays an important role in how individuals make investment decisions. Many investors are their own worst enemy. The risk of how some people make investment decisions is often more significant than the risk of the investment itself. The study of behavioural finance has grown significantly over the last several decades. Human psychology plays […]
Stock market’s volatile reaction to Brexit vote is normal
Investors act differently when they are scared. Most of us don’t like to admit that emotions can control our actions, however, neuroscience tells us a different story. Evidence shows that emotions can play a large role in decision-making and can, at times, lead to choices that are not in our best interests. The recent stock […]
Human pessimism hurts performance of investments
One of the most interesting aspects of investing is human nature. Understanding investments is difficult. Understanding human behaviour often seems impossible. Many times the weak link in the investment process is not the investments, it is human investors. There has been endless investment research that links poor investor decision-making as the main cause for financial […]
Panic selling of stocks can be expensive for investors
The best solution to endure stock market volatility is to put those normal market fluctuations into perspective. That is the objective of today’s column. This year stock markets got off to a rocky start. Stocks in China fell 7 per cent, which pointed stock values around the world in a downward direction. The American stock […]
Investing can be an emotional rollercoaster
During periods of stock market decline the one haunting and fearful question in most people’s minds is how much can the value of my portfolio decline. Investing in stocks, or mutual funds that own stocks, assumes investment risk. That risk has no specific boundaries. Last week’s column talked about the importance of discipline and acknowledged […]
Dealing with stock market declines requires discipline
The financial markets are melting. Is your financial future at risk? That depends. How you react during periods of market decline will be one of the most significant factors shaping your financial success for decades to come. In the two weeks since we celebrated the beginning of a new year, stock markets around the world […]