Curb Your Emotions – Behavioral Finance
February 24, 2015
Investing requires long term rational thought. Investment professionals – such as the famous Warren Buffet – are often quoted as saying phrases such as “emotions have no place in investing” or “the stock doesn’t know you own it.” The effect of emotional investing is usually negative and is driven by fear, greed or paralysis caused by over analysis. At Clay Northam Wealth Management we recognize that the ideal conditions noted above are really never the case as personality and previous experiences always influence an investor’s decision. The psychology behind how investment decisions are made is a recent field of study called behavioral finance. Traditional investment theory assumes that decisions are based on rational, even mathematical expectations. Behavioral finance points out examples of thought processes that lead to irrational financial decisions. (more…)