How can investors curb their tendency towards irrational decision-making?
The first step in tackling the risk of losses is to acknowledge the effect of overconfidence
Despite numerous behavioural finance findings on irrational investor behaviour, and its dramatic negative consequences on returns, investors are disinclined to believe they are at risk of making irrational decisions. In their minds, past success in their personal investments proves they are immune to this particular risk. They believe their investments will eventually turn positive.
Call me a pessimist, but the JSE’s unsustainable 30-year bull run, coupled with increased complexities due to globalisation and technological disruption, means the confidence that investors feel based on past success may be misplaced...
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