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Key findings of behavioural finance

The field of behavioural finance studies the way people make financial decisions. Understanding how deep-rooted emotional responses affect investment decisions is the first step in overcoming the wealth-destroying impact of human psychology.

      << Market fluctuations are your friends, not your enemies. >>

                                                                                                                                                                            -The Trimark way

The ability to maintain discipline throughout market cycles is crucial to overcoming the negative patterns. The following patterns have been identified across a broad spectrum of investors.

Behavioural patterns

  • Most investors are trapped in a cycle of fear and greed. When markets rise, they become desperate for ever-higher returns. When markets fall, they become convinced they will never recover.
  • Investors are overconfident and think they are better at marking choices than they really are.
  • Investors believe in winning streaks and are overly swayed by short-term successes and failures.
  • Investors confuse familiarity with real knowledge, and overreact to both good and bad news.

   << Even the intelligent investor is likely to need considerable willpower to keep from following the crowd. >>

                                                                                                                                                                             -Benjamin Graham

A financial advisor can help mitigate the impact of an investor’s emotional reactions. By maintaining proper asset allocation and encouraging investment discipline, financial advice can be the key to reaching your long-term financial goals.

                                                                                                                                    Source: Invesco, The Economist, July 5, 2003