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Behavior of-individual-investor
- 1. Welcome to our presentation BEHAVIOR OF INDIVIDUAL INVESTORS
- 2. Serial no. Name ID 1 Sumsul Arafine 18-006 2 Faisal Ahmed 18-012 3 Faria Lisan 18-030 4 Md. Arifur Rahman 18-148 5 Fatema Tabassum 18-172 6 Md. Johurul Islam 18-251 Group Profile
- 3. Research indicates on average, individual investors under- perform relevant benchmarks S&P 500 has generated annualized returns of 9.9% but individual investors have only 2.5%. More than 7% lower !!!
- 4. Why does that happen? Overall, the poor performance by individual investors can largely be explained by some behavioral biases that influence their investment decision-making processes. So…the investor’s chief problem – even his worst enemy – is likely to be himself.
- 5. In which shares are you going to invest? In GP, Square, ACI, BAT and Summit power WOW, Have you done your investment research? Do we need that? They are popular company. Familiarity bias
- 6. My friend is making more money . My return should be at least as much as his return. Relative wealth bias
- 7. I am going to sell my wining stocks My stocks are not doing well and I am going to retain those. Hanging on to losers and disposition effect.
- 8. I am going to call the day off. Hopefully it is going to be a good day for treading stock Investors attention, mood and experience
- 9. Herding effect: Investors make similar trading errors because they are actively trying to follow each other’s behavior. SellSell Sell Sell
- 10. Overconfidence Bias: Optimistic assessment of one’s knowledge and control over a situation. According to my analysis share price will go up for sure.
- 11. Over optimism Bias: Overestimating the likelihood of a good outcome and underestimating the likelihood of a bad outcome. 90% chance that stock price will go up & 10% chance that price will fall.
- 12. Mental accounting: Tendency to separate money based on subjective criteria often impacting financial decisions and wellbeing I’ve won a gamble and invested the money in Junk bond. I’m going to invest my savings in T-bill
- 13. Recency bias Law of small number bias As market is bullish for last few weeks, so I am going to invest
- 14. I am going to hold X’s company’s share Why, don’t you know that a major project of this company has failed recently. This may affect its share price. I don’t think this will affect the share price much. Anchoring bias
- 15. Prospect theory: Value gains and losses differently. Feel more pain in losing than joy felt in receiving equal amount of gain. Option A: NO payoff Option B: 50% Gain $50 and 50% Loss $50 Net result: 0={.5*50+.5*(-50)}
- 16. Suggestions to overcome those biases. Follow passive investment strategy: Invest in market portfolio. Seek diverse outside opinion to counter our overconfidence Stop watching news daily because watching news every day causes investors to react emotionally, rather than analytically and strategically. Search relentlessly for potentially relevant or new disconfirming evidence. Follow momentum strategy that says to sell stocks that have low returns and buy stocks that have past high return.
- 17. Thank You