One of the things that differentiate investing from other financial decisions is bargain hunting. When we buy things in stores, shop for cars or buy homes we have a tendency to look for bargains. We may even negotiate for a lower price. However, studies have shown that when it comes to investing, the more expensive a stock is, the higher the market rises, the more people want to buy.
It’s a common saying that the two emotions that most affect the typical investor are greed and fear. Greed makes us buy stocks that have already gone up in price, hoping that we’re jumping on the train that is leaving the station. Fear is what causes us to abandon the market just as it reaches the bottom.
Warren Buffett is quoted a saying: “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
The urges or biases that control our behavior have little or nothing to do with our wealth, our education or age. Some of these biases are
One of the biggest problems investors face today is not lack of information but too much information. Newspapers, magazines, TV and the Internet are bombarding the investor with information and advice: buy this, sell that, top ten funds of last year, cheapest to own, all delivered with intensity and conviction. And many contradicting each other.
Investment advisors recognize what biases affect people and provide tremendous value to their clients by understanding and helping reduce their influence. By education and hand-holding when greed or fear are influencing the investing public, they help their clients avoid what Warren Buffet calls their “urges” that get people into trouble.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.