Investors don’t always think rationally when making financial decisions

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.

Seth Klarman’s 2021 Letter: Baupost’s “Never-Ending” Hunt For Information

Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential 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

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