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Robin Powell: Hello there. A key attribute
The issue is partly emotional. Investors are prone to several
But it’s also physiological. A study has found that stressful situations, and raised hormone levels, in particular, can make people take more risks.
Researchers invited 142 volunteers, all of
RP: This research has important implications for investors. If you use active fund managers, remember that they work in highly
Also, you yourself should avoid making big decisions regarding your portfolio when you’re feeling under pressure.
ER: The critical thing is to be aware that these factors do have an effect, so stress has an effect on your decision making, and testosterone would, so in terms of being overconfident, these are factors that do change your behaviour and they don’t, on the basis of our experiment, bring you any more returns.
So that’s sort of the critical thing, if you want to make the best financial decisions, you want to be in the right frame of mind to make those, and being stressed or highly overconfident, irrationally exuberant, those aren’t the best conditions for that.
RP: Remember, too, that having a rational and unemotional adviser can also help. Investment decisions are very important. A good adviser will always ensure that the client is in the right frame of mind to be making them. Thanks for watching.
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