Markets messing with your mind? The Most Common Investor Head Fakes

We like to think of ourselves as rational beings, but when it comes to investing our own money we can all get a little loopy.

In a recent poll by BMO, two-thirds of respondents admitted they are not in total control of their emotions when making investment decisions, and most have invested on impulse.

With so many non-professional investors participating in the markets a growing field of study called behavioral finance has set out to find what makes investors tick. Here is a compilation of some of the biggest head fakes:

Fear: This is the emotion that causes us to abandon the golden rule of investing: buy low, sell high. As we watch our investments fall in the context of a broader market downturn we create an apocalyptic scenario in our minds where it falls to zero, and we want to get out at any price. In reality, most stocks have what is called an intrinsic value, meaning they have some worth despite what the markets say. Unless a fundamental problem with the company itself has been revealed the market has probably overreacted.

7 Comments

  1. Karol W.

    I dont understand why so many people spend so much time trying to beat the market. It never works in the long term.

    The smartest thing is to just follow the index and buy and hold. History shows that is the only way to really make a good return.

  2. Dionte

    I am 65 now and in the 60s the same concerns families have are still here today. Canada and the CRA need to make a dummies guide as mandatory reading by all Canadians to save new people time in learning what us old folk have known for years.

  3. Ramiro Gillham

    The best part of the read is the mentioning of "Herd Mentality". How many bubles and busts have occurred due to people jumping in, in what they think is a sure thing.

    Anyone remember the Real Estate bubble and the subsequent 2008 financial crisis?

  4. LaMarcus S

    My biggest problem is i feel i need to stay into stocks way too long because i thikn it will get a bit better. That is the worst. Never stay in too long.

  5. Angelo Cram

    TD Canada Trust was trying to get me to buy several of their mutual funds at an MER of 1.5% and was on the verge of pulling the trigger but after further reading found that these banks are making way too much on fees. Real shame. Thanks to this site i've gone with Questrade though.

  6. Brylee B

    I am definitely one of those who are sadly pushed to invest through impulse.

    When you see your neighbors bragging about putting their money into x, y, and z and you are standing their with your thumb up your bum you start thikning you need to get in on the action or look like a fool.

  7. Anna

    Diversify, diversify, diversify! That has been true 100 years ago and its ture today in Canada.

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