Investing is based on a certain amount of risk. This is a fact with which most people are familiar, from studying fluctuating charts and figures in daily reports. But how much of our success – or failure – at investing can really be down to that element of volatility? Enter, financial behavioural studies – a line of thought which argues that the investor’s decisions are at the crux of a portfolio’s performance, and not the graphs and charts that populate the news. The belief is summed up very well by Benjamin Graham, a particularly influential opinion leader on investing:The information contained in this article should not be relied upon as a substitute for professional advice in individual cases. Future changes in legislation, tax level, and practice could affect the information in this site. The information shown is based on date or information obtained from sources believed to be reliable but CurrencyFair makes no representation and accepts no responsibility as to its accuracy or completeness and will not be held liable for damages arising out of any person’s reliance upon this information.
“The investor’s chief problem – even his worst enemy – is likely to be himself.”The actions and behaviours of investors could in fact have a hindering impact on the performance of a portfolio. This is the view held by Andrew Hallam, financial wellness advocate and author of Millionaire Expat. In a recent series of informative sessions which CurrencyFair held with Hallam, this belief, and the correlation between psychology, behaviour and return on investments came up time and time again.
“The hardest thing about investing is to harness your own emotions; To try and turn off the news media, to completely ignore where market levels are, and who’s saying what about an inverted yield curve or an upcoming recession. This doesn’t take anything special, but in my own case, it has led to a portfolio that outperforms a variety of fund managers – all simply because I don’t allow myself to worry about forecasts.”We wrote about how banishing this kind of worry can be empowering for some individuals in a previous blog post; Especially for those who might be worried about developments like Brexit in relation to the performance of their assets. While it may not suit everyone to take such a passive role in their finances, the European Financial Review suggests that simply having an awareness of how market news and other biases can affect your conduct could be beneficial:
“A large part of investing involves individual behaviour. Ignoring or failing to grasp this concept can have a detrimental influence on portfolio performance”So, what are some factors which can play into your perspective on investing and resulting behaviour?