Behavioral Finance Affecting the “C” Suite?

Are we all affected by emotions well presented in Behavioral Finance?  You bet.

Profits have been solid, interest rates low, and many say bargains are abundant in certain industries, yet many companies aren’t investing at levels that some say are appropriate.  Uncertainty about the economy, markets, and economic policy is affecting us all, but decision bias in the “C” suite may be playing a bigger role than we might have thought.

A recent McKinsey study of over 1,500 senior executives found that respondents who reported observing the fewest decision biases were more likely to have made significant investments since the global financial crisis.  In addition, this same group’s number of perceived biases correlated with the performance of investments.  The fewer reported biases, the better the reported performance.

The study also found that biases could be constraining overall investment, even when in the minds of the executives the investments could have helped.

Many investment firms have pieces out on behavioral finance and how it affects the stock market and investors.  I thought it would be good to remind all that emotions affect everyone.

Now back to the news…

Greece passed a key vote to continue to kick the can down the road some more (have they just taken too much hemlock for their pain?).  The full story on this has not been written yet but the markets reacted as they should have, positively.

With all of the back and forth, and literally blood on the streets, are some investors frozen and being too conservative in terms of not investing according to their long-term plans?

I could write much more on decision bias, loss avoidance, anchoring and other common behavioral finance terms.  We are all human and affected by our emotions.

This is why I think it is important put down in writing a long-term plan that will achieve your goals and revisit it often to make sure it is on track.

Try to get anchored on a well thought-out plan versus getting caught up in the day to day.  It has been my experience that if you write down an objective before you invest, it is easier to stick to the plan versus letting emotion, or the competition of the market, take over.

Wishing us all good fortitude to stick to our plans.

 

 

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