Stacey Brown, a top business executive in Eastern Boston, in a radio interview last Thursday, revealed the havoc emotions can cause in the business realm. She conceded being emotional in investment is something that is very easy to occur if concerted efforts are not made to curtail such occurrences. “The unstable nature of the market will definitely have a toll on your investment and these are way too conspicuous to ignore”, she noted. She then added that a good investor is one who is able to control his/her emotions during such turbulent times.
During the revealing interview, it was brought to the fore that one major setback facing most investors is that they seem to be caught up in the demands of the market and this tends to sway them off the most important target.
According to her, a consequence of this could be buying high and selling low, which contradicts the investor’s original plan. The returns on stocks averaged 9.2% per year and that of bonds averaged 5.7% per year from 1994 to 2013. That of the average investor was around 2.5%. This shows the gap between the average investor and the average returns from both stocks and bonds.
“This gap can be related to the emotionally oriented investments that investors usually make”, she added. Overconfidence was cited as one clear-cut causative agent that catalyses this process.
Investors who are overconfident tend to invest in “losing” stocks and accrue further greater losses because they fail to accept the fact that they’ve made a wrong decision. She further revealed some investors can be so emotionally attached to a stock that they find it difficult to disassociate themselves from it, though the stock might not be economically sound to continue to invest in those stocks.