Emotion and Investing
While some might think that investing is purely a rational exercise, that certainly does not seem to be the case for many investors. Emotion and sentiment drive market movement/volatility and understanding this reality is a key component for investing success.
Behavioral finance theory suggests that fear and greed can lead to unanticipated consequences when heavily influencing investment decisions. Short-term momentum investors rely on emotion to drive profitability. Longer-term or fundamental investors rely on cash flow predictions and are less impacted by short-term emotions. In our view, long term wins.
If you'd like to learn more about behavioral investing theory, here's an interesting link:
At Destination Wealth Management, we recognize the impact sentiment can have on investment strategies and do our best to capitalize on over-reactions or defend against under-reactions. As portfolio managers, we question constantly if our decisions are driven by rational likely outcomes compared to irrational conjecture. In fact, we often hear from those we work with a key benefit of working with DWM is to avoid being overly influenced by emotion.
In today’s video I talk about:
- How do emotions affect investment strategy?
- Are there cycles of grief and fear?
- How does media language contribute to emotional reactions?
- 2 Goals: Minimizing negative emotion impact. Maximizing investment opportunity.
- Emotions: A quick summary
- Here to help
Spanish Flu 1918 vs. 2020 COVID Pandemic
Our Common Sense update later this week will be a comparison between economic reactions during the 1918 Spanish Flu epidemic and COVID-19. You'll find interesting I'm sure.
The opinions expressed herein are provided for informational purposes only and are not intended as investment advice. All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, Destination Wealth Management cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose. Any links to other websites are used at your own risk.