Improving your investment strategy by understanding investor behaviours
Understanding Investor Behaviour 1: Riding the Emotional Roller Coaster
I want to address a phenomenon that’s quite common in investing which is the emotional roller coaster ride we go through when we trade stocks. Some of us have sworn off buying and selling equities because of our history with stocks. And no amount of preaching about how the S&P 500 rising in the past 10 years, 50 years, etc will move us to buy into an equity investment again. Would you believe that this is a perfectly rational and reasonable emotional reaction? It’s far more complex than simply “once burned, twice shy”. Losing money for (seemingly) no reason resonates very deeply with most of us as we worked very hard, and endured much pain and sacrifice to make that money.
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It hurts so much more when it’s only us who is suffering because we are the only one invested in that particular stock. What do we mean by this? We endure a different emotional reaction between a broad based sell down in technology stocks – which is now ongoing – than if we had lost 50% of our investment value overnight because of a single stock. Singapore-listed business trust, Asia Pay Television Trust, did just that earlier this month, as it announced an 81.5% cut to its dividend payout per unit.
Understanding Investor Behaviour 2: Going through the emotional cycle
And this is where application of the emotional cycle comes into play. The entire emotional range will be at play. Shock and denial, pain and guilt, anger and bargaining, depression, the upward turn, reconstruction and finally, acceptance and hope. We don’t claim to be psychologists or psychiatrists, but as humans, we have seen people in all these stages at various times, and have talked to them in dark times, and also when things come back upwards. Like all human life episodes, there is hope; a light at the end of the tunnel. Things are never the same, but things can (and do) get better.
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The constructive response is to pick yourself up, learn from it and find another way. It is precisely because of cases like this that our investment solutions team here at Providend spend months upon months searching through data and results from some of the best fund managers in the world to find solutions that work for you. And whilst we are keenly aware that the bottom line is usually the only metric on which these searches are measured, on the soft side, we truly hope that we can spare people from the intense grief and misery that comes with massive investment loss. We use our skill and our knowledge to manage these risks, including business risk, market risk, foreign exchange risk, counter party risk, inflation risk. This is by no means a comprehensive list, but it does start to give an idea of how many factors need to be considered to guard a portfolio against unwanted results.
Understanding Investor Behaviour 3: Get help
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So what we are trying to say is, there is help. Lots of it. And it doesn’t need to be expensive, or exclusive. Come, talk and share with us your stories. We are always keen to listen and to help. And, as quoted by the master Michaelangelo, “Ancora Imparo”, or (after a little paraphrasing), “I am still learning”. May we never stop learning and improving on this journey called life.
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We recommend that you talk to one of our friendly advisers about your investment needs today. They are always more than happy to have a chat about how we can help you.
This is an original article contributed by Providend’s Editorial Team.