Throughout the course of financial history, investors have shown tendencies to abandon their investment strategy due to various emotional and/or psychological factors. These behaviours have frequently led to poor investment returns over the longer term.
Numerous studies in behavioural finance have demonstrated that people tend to have a cognitive bias to avoiding losses – in other words, we tend to dislike losing money far more than we enjoy making it. This phenomenon (often referred to as ‘loss aversion’(7)) means investors will often make sub-optimal decisions in an effort to reduce their risk of loss, even if it means missing out on significant gains. This could mean they sell when markets are bottoming out, only to buy back in later when the market has recovered and they have sacrificed huge potential gains.
It’s not just the fear of loss that can drive poor investment decisions. The ‘fear of missing out’ can also cause people to overvalue ‘hot’ investments.
Six Park provides a disciplined platform for investors to stay the course with their investment strategies and not be swayed by emotions and/or market sentiment. Guided by the deep expertise and experience of our Investment Advisery Committee, we offer investors globally diversified portfolios which are tailored to their personal goals, risk tolerances and investment horizons. While this approach can’t guarantee you’ll outperform other potential ‘lucky scores’, it will help you avoid the pitfalls of emotionally driven decisions while providing the most rational and prudent approach to reaching your longer term desired investment goals.