Emotions Vs Cost of investing

Most investors are no doubt familiar with the standard disclaimer “Past performance is not indicative of future results.”  This blogcompliance truism tends to stay in the fine print, both on paper and in investors’ minds, when they make decisions on the basis of real-time market dynamics.

Even if investors purport to buy into the logic of the “random walk” argument about security prices, in practice they tend to extrapolate recent history into the future (termed recency bias in behavioural finance) when making portfolio decisions — for example, believing that if stock prices have gone up recently, they will continue on that upward trajectory. Continue reading “Emotions Vs Cost of investing”