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.