There has been lots written in recent years about behavioural finance, in a nutshell this seeks to understand the reasons why investors (private and professional) behave the way they do, when invariably this produces very poor results. We all (hopefully) know that when it comes to investing you aim to buy low and sell high, of course this is not easy, particular in a world overloaded with information and noise. The struggle most investors have is essentially with themselves.
Perhaps this tension is reflected in recent films. There is a branch of investment theory that believes in looking for social signs that provide an investment advantage. Some take the hem line of dresses to reflect the direction of shares, the number of goals, the types of films… all essentially on the belief that more general “confidence” or lack of are displayed. Of course most theories hold a modicum of truth to even raise your attention, but as a long-term process, invariably amount to little more than highly spurious claims.
Over-confidence and Bad Behaviour?
Yet investors continue to display habits that are costly, panic and over confidence being two key elements. Investors find it very difficult to be dispassionate about their money, most believing that they are equipped sufficiently with common sense, market information of plain “insight” that provides advantage. The truth is rather different.
If you are persuaded that the big blockbuster movies are any indication of current sentiments, then perhaps the action-hero genre is worth consideration. As opposed to the usual theme of saving the world with the “good guy” we are presented with “Batman versus Superman: Dawn of Justice”, “Deadpool”, “Captain America: Civil War” and “Suicide Squad”. All reflecting concern about the assumptions we make about heroes and those we empower. Indeed also examining the conflict between friends, allies and team-mates when they disagree over the degree of Machiavellian behaviour required – ends justifying the means. Of course the deeper reflection is that we are ourselves each character, at war with ourselves. Something investors would do well to remember in the heat of trouble and why a rational, dispassionate, long-term, evidence based, sustainable investment approach is what we believe will ultimately protect and serve.
I’m hoping to put some posts together about the basics of behavioural finance, but in the meantime if you are struggling to see the enemy within, perhaps a trip to the movies may be helpful. Of course one might make the case that the current political backdrop and decisions being posed to us here in the UK are also reflected in film. We shall see quite how sensationalist, nationalistic and competitive our media become over the summer, an EU referendum, US Presidential campaign and ample national sporting events.
Here’s the trailer for the latest Captain America film “Civil War”. The Marvel franchise is very much alive to the complexity of character.
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The Internal Fight and Behavioural FinanceDominic2017-02-02T13:34:39+00:00