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instrategia.com
The most
overlooked
human behaviour
in investment
decisions
instrategia.cominstrategia.com
instrategia.com2
This presentation is made by INSTRATEBGIN, a division of P&C Ventures Limited (‘P&C’). It is partially ba...
instrategia.com
The results of four decades of research in
behavioral finance show that investors are
predictably irration...
instrategia.com4
Action biases
drive us to take action
less thoughtfully than
we should
Stability biases Pattern biases Ex...
instrategia.com5
Confirmation
Bias
Once an investor starts to
like a company, he may
dismiss negative
information as irrel...
instrategia.com6
Personalise investment
Forget to distinguish luck from skill
Underestimate decision fatigue
Take failure ...
instrategia.com7
… and improve
returns
Become aware of your biases
Understand how they impact your
decisions
Implement deb...
instrategia.com8
Behavioural research shows that biases prevent us from
making good investment decision
… and hone their i...
instrategia.com
Where we are
10/F Central Building
1-3 Pedder Street
Central, Hong Kong
Tel: +852 3478 7315
Website: www.i...
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The most overlooked human behaviour in investment decisions

The most overlooked human behaviour in investment decisions

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The most overlooked human behaviour in investment decisions

  1. 1. instrategia.com The most overlooked human behaviour in investment decisions instrategia.cominstrategia.com
  2. 2. instrategia.com2 This presentation is made by INSTRATEBGIN, a division of P&C Ventures Limited (‘P&C’). It is partially based on information obtained from market sources. No representation is made by P&C as to the accuracy of such information. This presentation does not in any way whatsoever include advisory, corporate finance, actuarial, legal, property valuation, taxation, accounting, regulatory financial or other advice of any kind in any jurisdiction and no responsibility or liability, with respect to any action, omission, recommendation or comment made by P&C in relation to any matter or anything contained herein will be accepted. Readers shall be responsible for obtaining all such advice as they think appropriate on such matters and will be responsible for making their own investigations and appraisals in this respect. No action, omission, recommendation or comment made by P&C in relation to this presentation shall constitute, or be deemed to constitute, a representation, warranty or undertaking by P&C. This presentation has not been reviewed by appropriate or relevant legal counsel and P&C reserves the right without assuming the obligation to seek such legal opinions as may be required to ensure that the views set out by P&C fully comply with all legal and regulatory requirements. COPYRIGHT P&C VENTURES LIMITED – NO REPRODUCTION ALLOWED WHATSOEVER
  3. 3. instrategia.com The results of four decades of research in behavioral finance show that investors are predictably irrational! -  they often deviate from logic and reason -  they display many biases that influence their investment decision-making. instrategia.com3
  4. 4. instrategia.com4 Action biases drive us to take action less thoughtfully than we should Stability biases Pattern biases Experience biases create tendency towards inertia in the presence of uncertainty lead us to generalise based on experiences lead us to recognise patterns even when there are none Halo effectAnchoring Excessive optimism Illusion of control Illusion of understanding Over-confidence Herding instinct Endowment effect Status quo Sunk cost effect Mental accounting Availability Confirmation Inappropriate extrapolation Hindsight Neglect of prior base rate Probability neglect Gambler’s fallacy Framing Illusion of validity
  5. 5. instrategia.com5 Confirmation Bias Once an investor starts to like a company, he may dismiss negative information as irrelevant or inaccurate and even seek out information that bolsters his case that the company is a good investment Example of impact Availability / priming We seldom retrieve all relevant information but merely what we consider to be ‘enough’ when making a judgement. As a result recent observations have a dis- proportional influence on the decision Example of impact Anchoring Bias We rely too heavily on one trait or piece of information to which we are exposed (e.g. past performance record) and have difficulty adjusting or changing our views to new information Example of impact How biases can distort decision- making
  6. 6. instrategia.com6 Personalise investment Forget to distinguish luck from skill Underestimate decision fatigue Take failure personally To reduce human risk … DON’Ts ý 6
  7. 7. instrategia.com7 … and improve returns Become aware of your biases Understand how they impact your decisions Implement debiasing practices Build experience Gain objectivity through a coach DOs instrategia.com þ
  8. 8. instrategia.com8 Behavioural research shows that biases prevent us from making good investment decision … and hone their investment decision-making through reducing the impact of behavioural biases We work with investment companies to help them improve their critical thinking skills ...
  9. 9. instrategia.com Where we are 10/F Central Building 1-3 Pedder Street Central, Hong Kong Tel: +852 3478 7315 Website: www.instrategia.com 9

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