Value Investing, Videos

Investors don’t always think rationally when making financial decisions

Published on Mar 15, 2016
Investors don’t always think rationally when making financial decisions.


0:04do investors have realistic expectations about their investment return when
0:09franklin-templeton asked what annual return investors expect to earn on their
0:13equity investments over the next five years the median response was a percent
0:18but if their investments fall short of that expectation will they stick with
0:22their current portfolios when asked what return over the next five years would
0:27cause them to rethink their investment choices the answered 5 percent had to
0:31expectations change at the stock market goes up and down when asked what kind of
0:36return investors expected from their portfolios in a year when the UE stock
0:39market was hypothetically up 20% the median response was a 15 percent total
0:45return this suggests that many investors would be ok with capturing less of the
0:49market’s upside in a good year more surprising with the performance
0:53expectations investors had for their stock portfolios in a year when the us-
0:58market was hypothetically down 20% the median response was a two percent total
1:03return meaning investors expect their equity portfolios to outperform the
1:08market by 22 percentage point it seems clear that investors are keen on the
1:13possibility of losing money to help measure the pain of investment loss we
1:18asked investors how several upsetting scenarios compared to a 20% decline in
1:23their retirement saving a majority of investors agreed that they would be more
1:27disappointed with a 20% investment loss then finding out their car was totaled
1:32they needed a root canal where they lost their pet ouch
1:36the fear of investment loss probably explains why ninety-six percent of
1:40investors said risk management expertise is important when choosing an investment
1:45on the market ups and downs cannot be predicted mapping out long-term

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