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How mindset affects investment behaviour

By Sam Instone - August 15, 2018

An optimist wakes up knowing things are broken.

And more will break.

But he endures, aware things will improve.

Is this you?

The optimist knows things are not in his control.

Big things will collapse.

Important things.

Things that will make life a little less bearable.

He expects disappointments at work.

Profit losses.

Impending recession.

He continues his day.

Reads the news about our broken world.

Wars, recessions, political crises, crimes.

But instead of being discouraged…

He remains optimistic.

Reading the news about our broken world.

He knows disappointments and failures

Are just preludes to success and happiness.

That progress happens when we learn.

And we learn when we fail.

As an investor, he’s no different.

He invests in a stock market that may crash.

Which could happen tomorrow.

Or in a few years.

He understands perseverance reaps higher returns.

Disappointments test endurance.

Despite infinite plans for various outcomes…

He never plans to quit.

perseverance reaps higher returns

The complacent person is different

He believes optimists expect only good news.

He wakes up convinced everything is ok.

His workplace will be happy.

Investments will perform.

Risks can be safeguarded.

People enjoy being around him.

(Mistakenly thinking he is an optimist.)

As an investor, his views are warped.

Despite cautionary tales of risky investments.

He doesn’t expect anything bad to happen to him.

How mindset affects investment behaviour 2

So, he takes the risk.

Calling it an opportunity.

In his mind, he warrants his behaviour…

By saying he is ‘optimistic’.

Unprepared for failure.

With no back-up plan.

And no room for error …

He reacts irrationally

Sells his investment.

Downgrades his lifestyle.

He becomes angry.

Things didn’t go to plan.

He becomes cynical.

Which makes him pessimistic.

The pessimist sees the same chain of disappointment as the optimist

But he sees the chain as ‘the end’.

Not as a sign of progress.

A glass half empty.

Believing there’s no such thing as eventual growth.

And as an investor, loses complete faith in the market…

Selling to cut his losses.

Those are the three types of risk mindsets in the world:

  • Those who know things break. They know better results come with learning and improving.
  • Those who think things never go wrong and are broken when they do.
  • Those whose experience of failure have led to their complete loss of faith in eventual growth.

Optimism, complacency and pessimism.

Which one describes you?

And is it bringing you better results?

If you’d like us to review your current portfolio, get in touch. We’ll assess whether it’s working for you.

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