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.

Charlie Munger: Invert And Use “Disconfirming Evidence”

Charlie MungerCharlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More


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