Return of the Emotional Investor

Updated: Mar 30



Transcript:


0:13

Today my piece is inspired by my trip to have my tire winter tires swapped off. It was common in the late 90s for the mass retail investor to be not just participating in the picking and timing of individual, mostly at that time tech stocks, but also being very excited about it. That leads me to what the basis for this pieces is emotional decision making.


0:47

This is a graphic that's fairly common, but it talks about the different stages of emotions relative to investments or I guess financial markets as a whole, and it suggests that you know, people go through these different stages, optimism, enthusiasm, exuberance, euphoria, and this leads to a comfort to buy, invest, I think behaviorally or emotionally there can be greed elements here, and then also the fear of missing out. "Wow, that stock went up a whole lot yesterday, I have to participate, or I might miss out on what it might do tomorrow." Those behaviors are not likely to be to lead to successful outcomes.


1:38

You know, what ultimately happens with investments, they exaggerate upward movements and exaggerate downward movements. And so that very same investor who liked the stock that did really well yesterday buys for whatever emotional based reason, that stuff starts to decline. You know, the first feeling is anxiety. The second is denial. You know, this move is only temporary downturn, minute for the long run, you know, that's kind of the misappropriation of smart investing. Well, that concept of, "I'm in it for the long run," really is, you know, again, it's a misappropriation when applied to an investor who has gotten involved in investments for the wrong and largely emotional reasonings.


2:32

And so the cycle continues fear, despair, panic, capitulation, discouragement, markets can stay irrational, both positively and negatively, far longer than investors expect. And so what then happens is the time when they felt most comfortable and buying was likely the very worst time to be buying, and then the time that's probably the very best for them to be buying is likely the time where the are the most fearful and most likely to actually be selling. This is a a common thing that happens for many investors. And I believe that the key to avoid this is to have an investment plan based on a diversified portfolio that is repeatable.



About WealthFactor: A Lake Oswego based investment adviser and wealth manager serving local high net worth and ultra-high net worth investors. Founded on the idea that high fees force unnecessary risks when providing investment advice. By leveraging the investment methodologies of the largest passive and rules-based asset managers, WealthFactor seeks to pass on the benefits that efficiency provides through financial technology on to its clients. WealthFactor offers custom investment advice services conveniently through separately managed accounts in each investor’s name. For more information visit www.wealth-factor.com.

About Bill Woodruff: WealthFactor’s founder has been investing in publicly traded financial markets for over 20 years. His career includes founding an alternative investment manager, launching and managing a mutual fund and serving as a managing director of a publicly traded investment manager. With over a decade of experience serving high net worth investors Bill skillsets uniquely blend an understanding of investor needs with an extensive background in financial markets and investing.

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