Invest
Investors warned on ‘contagious’ logic lapses
Only investors who can identify "lapses in logic" that inform damaging portfolio decisions will be able to succeed in the current market conditions, according to AMP Capital.
Investors warned on ‘contagious’ logic lapses
Only investors who can identify "lapses in logic" that inform damaging portfolio decisions will be able to succeed in the current market conditions, according to AMP Capital.
In a note to investors, AMP Capital chief economist Shane Oliver said individual investors are often prone to "lapses of logic" that can end up damaging their portfolios.
Examples of such behaviours include playing down uncertainty; focusing on sharp rises and falls in certain markets; ignoring new information that contradicts past decisions; and giving more weight to personal experiences.
Mr Oliver explained that mass communication and interactions with friends and colleagues means these lapses of logic can become "contagious", with many investors getting their information from the same sources.
"Naturally, the result is magnified if many investors make the same lapses of logic at the same time, as part of a crowd," he said.
Investor optimism tends to push an asset class until a point where "everyone who wants to buy has" and a small bit of bad news will tip the market down, he said.
"The whole process goes into reverse once buying is exhausted, often triggered by contrary news to that which drove the rise initially," he said.
Mr Oliver noted that at the other end of the cycle, however, when an asset class is "cheap and unloved", investors are presented with the best opportunity to buy and the market moves upwards once again.
Being aware of past booms and busts in a particular market will go a long way to avoiding potentially damaging overreactions; likewise, investors who understand their own decision-making process will be better positioned throughout this cycle, he said.
Mr Oliver added that sticking to a broad strategy and not changing the approach throughout surges and plunges in the market rather than following the crowd is the best strategy.
"If you are tempted to trade, do so on a contrarian basis. Buy when the crowd is bearish and sell when it is bullish," he said.
RELATED ARTICLES
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
