The Psychology of Investing

2016-08-06T17:40:05+08:00By |Investing|

Write-up initially based on key points from Chen Fen Fai, CIO & Country Head of Eastspring Investments at the recent FSM event in Penang. E&OE. Alternative Title: The Good, the Bad & the (sometimes Ugly) Action Needed. 

psychology_by_tiggir02

The Good

  • As humans, we have the ability to control emotion & make decisions
  • It is good to be a skeptic when investing – ask negative Qs, ask many Qs (with apologies in advance to all investment advisors out there ;))

The Bad

  • Whether as an individual investor, fund manager, broker, etc – we all have biases & blind spots
  • Self control & willpower is NOT sufficient vs behavioral bias
  • We often overrate our abilities is amplified by illusion of control
  • Beware of self-serving bias prone to act in ways supportive of own investments

Action Needed

  • We need to develop investment processes
  • Avoid investments (or companies) if don’t understand the business model (know your circle of competence)
  • Invest only what you have AND are comfortable with
  • Information is important – but decision & action is needed!
  • Know what you’re doing – are you value investing VS growth investing VS having fun (aka casino de investing)?
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