• Return expectation - many investors base their return expectations on the past performance of a particular investment, despite knowing that it’s not a useful indicator.
• Risk tolerance - many investors misunderstand their own risk tolerance for portfolio or position volatility ….. usually believing their tolerance for volatility is higher than it actually is. This has also been called “statement shock”
• Time horizon - many investors mismanage their portfolio time horizon based on their portfolio returns as opposed to the specific needs and objectives of the investment portfolio. This is also known as managing a 10 year portfolio on a weekly basis.
• Diversification - many investors believe diversification involves placing portfolios with different institution ensuring they don’t “have all their eggs in one basket”. True diversification starts with different asset classes. Our observations suggest investors are over diversified as much as they are under diversified, not really knowing what is appropriate.
• Anchoring - many investors become emotionally attached to portfolio positions based entirely on their individual performance, good or bad, happy or sad.
• Advice channels - many investors receive investment advice from print media, television, the coffee shop and their neighbour’s uncle etc. The investment ideas leave the investor feeling “left out” because everyone would have you believe they’re making 9000%.....
The single most important conclusion we‘ve made from these observations is this:
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