Emotions Influence How We Invest. Here is How You Can Manage them.
To be a successful investor, we believe it is critical to understand, and hopefully distance ourselves from common emotional biases that lead to investment mistakes. To keep emotional biases in check, Stock Circles puts you back in control by automating your investment strategy.
When the market is performing well, we tend to feel happy and optimistic. When the market begins to decline, anxiety sets in which can lead to a phenomenon called Loss Aversion. With Loss Aversion, the pain of losses becomes a powerful emotion hard to manage as our survival instincts kicks in. This aversion to loss can contribute to panicked selling or to the adoption of an overly conservative investment strategy. These decisions may result in a portfolio that doesn’t perform as well as it could have.
Recent events, such as market declines, can contribute to panic selling diverting us from our long-term strategy. Even when we see signs of improvement, fear of losses can linger. This reaction is an example of another emotional response known as Recency Bias which might lead some investors to become convinced that once the market drops in value, it will never go back up.
Investors tend to place greater weight on what they’ve experienced most recently, using it as a guideline for what might happen next. As an example, Investors who came of age soon after the financial crisis of 2008-2009 have mostly steered clear of stock investing — even though they have exceptionally long time horizons when it comes to saving for retirement.
There's a third emotional tendency is called Anchoring. With anchoring, individuals tend to hold onto an investment that has lost value for too long in hopes that it will go back up to the original purchase price. Although many investments will eventually recover from difficult times, Investors tend to base their decisions on feelings instead of planning a clear exit scenario.
Stock Circles investment philosophy and proprietary automated portfolio management platform help reduce emotional biases by automating your investment strategy. Our goal it to put you back in control by implementing clear investment parameters, profit harvesting and downside protection.
While we all have a natural tendency to react emotionally to market volatility, automated portfolio management systems do not. Since all Investors are prone to emotional biases, we encourage them to evaluate our automated portfolio management and investment philosophy to define a long-term investment strategy that suits their specific needs.
Interested in learning more about our Automated Portfolio Management solution to reduce emotional biases? Go to