STREET DOGS: To reduce the pain of down days
Human nature makes it difficult for people to process losses in the same way they deal with gains
From Ben Carlson at A Wealth of Common Sense: Since 1926, if you were to take the daily performance of the S&P 500 and break it down into gains and losses, the numbers show that it’s basically a coin flip between up and down days, with 54% of all days showing positive performance and 46% showing negative returns. Even during the huge bull market since early 2009, the daily returns have followed a similar pattern: the positive days slightly outweigh the negative days, but it is close enough that [when] stocks begin to fall, investors worry that the end is near. Human nature makes it difficult for people to process losses in the same way they deal with gains. We regret losses twice as much as gains make us feel good. This can have a huge impact on our actions as investors. Since the daily performance in the stock market is more or less a 50-50 proposition, loss aversion means that checking the value of your investments on a daily basis will make you feel terrible. All those warm feeli...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.