How to deal with irrational investment decisions?
Today we will talk about !
👉How to deal with irrational investment decisions? Building a low volatility strategy may be a solution.
👉The key to building such a portfolio is to focus on high-quality stocks with stable trading patterns and attractive prices.
👉You can use deep fundamental research from active management to find high-quality stocks and better manage volatility.
👉This is critical in today’s environment of rising interest rates, macroeconomic uncertainty and geopolitical instability.
Human behavior can lead to irrational investment decisions, but a well-planned low-volatility strategy can be an antidote.
❗️Human behavior is not always rational. Perhaps this is why so many thoughtful investors make irrational decisions – locking in losses by selling at the worst possible time or chasing overvalued stocks.
👉In the process of investment, we need to learn the loss aversion bias.
👉People are more averse to losses than to risks. Compared with making money, people will take more risks to avoid losses.
👉Therefore, we always need to implement a strategy: giving up a little upside in a rising market in exchange for a two to three times lower downside risk, which may be in line with human nature.
Yes, excessive greed is one of the conditions that everyone has before losing everything. But if you know how to earn certain returns in a limited time, then this can be sustainable.
👉Overconfidence: More trades do not lead to better returns
📍Investors often let behavioral biases such as loss aversion and overconfidence influence their investment decisions. Fortunately, there is an investment philosophy that can help overcome overconfidence and risk aversion bias.
💢Consider a stock investment strategy that seeks to limit downside capture — that is, exposure to falling markets — while participating in market gains, but not fully.
💢Such a theoretical portfolio could capture 90% of the market’s gains on up days, while losing only 70% of the market on down days.
💢By targeting stocks that strike a balance between offense and defense, low-volatility investing reduces the risk of investors chasing overvalued stocks that might otherwise be driven by overconfidence.
❗️Today’s course sharing ends here, please study hard!
❗️Learn a little bit every day, and you will be surprised to find that you have made a lot of progress in a month!
Good day, my friends ,classmates, see you in next session.
Q & A
Sir, does the investment strategy guidance you mentioned mean that when investing in stocks, you need to make a good portfolio management combination?
I remember that when I participated in your last webinar, you mentioned the reasonable allocation of funds. I don’t know if my understanding is correct.
You are right, this strategy is very targeted because many investors are often overconfident when choosing to invest in stocks. They use all their funds to buy one stock. When losses occur, they are unable to balance risks and returns.