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Curious Investor Behaviour - Number 1 Phase Myopia At different phases of the market, our perspective changes. In the steepening down phase there is a tendency to take an ever-narrower view of the facts, focusing on near-term risk rather than longer-term reward. Conversely, a developing bull market inspires...

08 September, 2014

Curious Investor Behaviour - Number 2 Heuristic Simplification According to Nobel laureate Herbert Simon, people are so swamped with information that they react consciously to only a tiny part of it. We adopt rules of thumb instead of absorbing the entire data. In general, shortcuts serve us well,...

08 September, 2014

Curious Investor Behaviour - Number 3 Confirmation Bias Once we have made a decision or formed a view, we subconsciously emphasise information which reinforces that view; at the same time, we tend to downplay contradictory information. The confirmation bias is perhaps the most subversive of all behavioural...

08 September, 2014

Curious Investor Behaviour - Number 4 Over-Confidence According to multiple studies into human behaviour, the majority of people consider themselves superior in most day-to-day activities - for example, over 90% of drivers believe they are better than average! Over-confidence is a particularly dangerous trait in the field of investment....

08 September, 2014

Curious Investor Behaviour - Number 5 Herding When investors are uncertain about the value of financial instruments, they typically default to a herding impulse; part of our evolutionary heritage that served us well in the past. Sadly, herds are ruled by the majority, so the prevailing mood predominates. It...

08 September, 2014

Curious Investor Behaviour - Number 6 Conservatism Bias People tend to cling tenaciously to an opinion. Even when circumstances have changed, most people find it difficult to adjust their view. A study by Dresdner Kleinwort Wasserstein in 2002 reveals that analysts' forecasts typically trail reality- in fact most...

08 September, 2014