Understanding Investor Behavior & Biases

posted on 06 November 2014 by Sunil Jhaveri

To become a successful advisor, one must understand investor behavior & biases. Sometimes Investors become overconfident & sometimes too conservative. Unless & until we get them to think logically & not irrationally, we as advisors will not be able to achieve the tasks assigned to us viz. an effective financial planning for their various life goals. A very important Investor Bias is called AVAILABILITY BIAS. Their investment decisions get strongly influenced by recent market events. If in the recent past stock markets have corrected or interest rates have gone up (thereby generating negative portfolio returns); in all likelihood, these investors will never look to invest in equities or debt schemes due to this AVAILABILITY BIAS. However, generally these are sometimes the best times to invest.