Tips on decision-making when investing
The trouble with investing is there are so many decisions that have to be made. Are you better to manage your investments yourself or should you select an investment advisor to assist? How do you choose the right advisor? What is your allocation between investing in stocks or bonds? Should you diversify outside of Canada? […]
Human brain not built for smart financial decisions
Why is much of financial behaviour so ridiculous? Excuse me if this sounds a little insulting but many people realize they have a very poor track record when it comes to managing their finances. As it turns out, the answer to my question is a short one. Because we are human. Many people think we […]
It is human nature to want to speculate
A question that comes up from time to time is whether it’s a good idea to purchase a specific investment versus a balanced and diversified portfolio consisting of many different investments. For a few months Bitcoin was getting a lot of press. Some wondered if they should invest in it because its value was skyrocketing. […]
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 […]