Financial Tools
  Client Portfolio Access
  New Client Kit
  Enquiry / Seminar Registration
Hot Issues
An investor's personal trainer
SMSF trustee penalties going up
Contraventions rife among non-advised SMSF trustees
Dealing with investor uncertainty
Reserve bank gives the economy a lift
Retirement planning: the gap between intention and reality
Market Update – April 2015
Budget 2015 - some professional opinions
Australian Government - Budget 2015
What does the ATO want from you?
Making sense of the new excess contribution rules
Greying, working and contributing
Simple-yet-smart investment housekeeping
Market Update – March 2015
Customer-centred innovation underpins high satisfaction among financial advice customers
Two sides to the age profile of SMSF members
Actuaries call for end to superannuation policy tinkering
ATO urges caution on pensions
Market Update - February 2015
Aussie economy shifts gears as structural changes take hold
The catch 22 of retirement savings
Are there reasons to help the tax man do his job?
Some financial terms explained
Small business paradox
Good financial planning finally has a value: 23% more income in retirement
Articles archive
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 3 July - September 2014
Quarter 2 April - June 2014
Quarter 1 January - March 2014
Quarter 4 October - December 2013
Quarter 3 July - September 2013
Quarter 2 April - June 2013
Quarter 1 January - March 2013
Quarter 4 October - December 2012
Quarter 3 July - September 2012
Quarter 2 April - June 2012
Quarter 1 January - March 2012
Quarter 4 October - December 2011
Quarter 3 July - September 2011
Quarter 2 April - June 2011
Quarter 1 January - March 2011
Quarter 4 October - December 2010
Quarter 3 July - September 2010
Quarter 2 April - June 2010
Quarter 1 January - March 2010
Quarter 4 October - December 2009
Quarter 3 July - September 2009
Quarter 2 April - June 2009
Quarter 1 January - March 2009
Quarter 4 October - December 2008
Quarter 3 July - September 2008
Quarter 2 April - June 2008
Quarter 1 January - March 2008
Quarter 4 October - December 2007
Quarter 3 July - September 2007
Quarter 2 April - June 2007
Quarter 1 January - March 2007
Quarter 4 October - December 2006
Quarter 3 July - September 2006
Quarter 2 April - June 2006
Quarter 3 of 2009
Articles
Dumb, dumber, dumbest
Business confidence hits six year high
Matching investment risk tolerance to personality
Retirement incomes loom as super’s big challenge
Market and Economic update - August 31 2009
Powerful Budgeting and Super Tools available on our site.
Something remarkable with SMSFs
A determined tram driver
Price of crude jumps to 2009 high
Super Fund Members may be Entitled to more Age Pension
Transfer files securely using our website.
Hard at work - after all this time
Top 200 firms face $2.8b carbon bill
Re-contribution after turning 60
Stinging message for SMSFs
RBA chief hints rates could rise soon
1st July 2009 Start Dates
Investments Market Data - 30th June 2009
Dumb, dumber, dumbest
By Robin Bowerman
Smart Investing
18th September 2009
Principal & Head of Retail, Vanguard Investments Australia

One of Smart Investing's more favoured topics is to warn investors about the dangers of letting emotions enter their investment decisions.

As specialists in behavioural finance tell us: there is no place for emotion when making sound investment decisions.

Forbes Magazine journalist Scott Woolley picks up this theme in a recent feature, Emotional Investors' Seven Dumbest Mistakes.

"Daniel Kahneman won the the Nobel Prize in economics seven years ago for his work on how irrational humans systematically make mistakes," Woolley writes. "Since then, research in that field has exploded."

And not only has the amount of research significantly increased, but the global financial crisis has surely given researchers much more to work with given the level of irrational behaviour among unnerved investors.

Woolley interviewed financial planner Amy Barrett from Savant Capital Management in the US about emotionally-driven investors who "anchored" themselves to the sharemarket trough by moving into cash when prices were at a low. But those investors were now having trouble convincing themselves about when to reenter the market.

With the assistance specialists in investment and investor behaviour, Woolley then discusses what he labels as the "seven dumbest mistakes" caused by personal investors' emotions. Here are just three of them:

  • Anchoring: As discussed, this involves selling out of shares after the market has fallen and then having difficulty about deciding when to reenter for fear of paying too much – instead of making an objective and logical investment decision. "Anchoring" is an excellent word to sum up just one of the pitfalls of trying to time the market.
  • Overconfidence: In this context, it is a belief by some investors that they somehow have the ability to "outwit and thus outperform the market" without having a basis for such confidence. Overconfidence plays tricks on investors in rising and falling markets. 
  • Mad investments: This refers to investors making knee-jerk investment decisions when angry about how the markets have gone or perhaps about some investment advice. "When I get angry, I'm going to walk away for an hour [before making an investment decision]," says Dan Ariely, professor for behavioural economics at the Massachusetts Institute of Technology.


Some investors may be tempted to dismiss these tips as "simply commonsense". But in a way, that's the point. When emotional investment decisions are made, commonsense is usually forgotten.

 



21st-September-2009

  Financial Advisor | Financial Planner | Financial Adviser | Financial Planning | Financial Planner Sydney