Category Archives: BobC

Always Late to the Party, or Understanding Investment Biases

By Robert Cochran

It’s a funny thing, momentum. Some investments can do nothing at all for years, then suddenly produce very strong performance numbers. At the same time, other investments will have years of consistent out-performance and then, seemingly overnight, crash and burn. More often than not, these behaviors happen to individual stocks and sector funds, although some diversified funds fall victim to similar behaviors. Investors themselves often act in ways that lead to their own crashing and burning, causing them to think they are always late to the party, or that the punchbowl was taken away just before they arrived.

Behavioral finance is the study of individual investor Continue reading →

What if…

By Robert Cochran

Investors with any experience at all can recite the long-term results:  the U.S. stock market has averaged about 9-10% total returns over the last 30 years and about 6% the last 15 years.  The bond market has averaged about 5%.  In truth, the average stock market investor has gained only about 3.5%, on average over the last 15 years, and the average bond investor only 3.8%.  The lower investor returns are due to the inability of people to stay in the markets during turbulent time periods, when they cash out near market lows and then miss out on corresponding gains.  All kinds of studies have shown that staying invested pays off, but when risk becomes reality, investors become their own worst enemies, seemingly embracing the “sell low, buy high” concept they are trying to avoid.  Bond investors have realized gains that are almost 25% lower than average, for the very same reasons. Continue reading →