Francisco Gomez Pastrana Alva @jgpastrana: "⭐️𝘽𝙀𝙃𝘼𝙑𝙄𝙊𝙐𝙍𝘼𝙇 𝙀𝘾𝙊𝙉𝙊𝙈𝙄𝘾𝙎 𝘼𝙉𝘿 𝙁𝙄𝙉𝘼𝙉𝘾𝙀:..."

Spain

⭐️𝘽𝙀𝙃𝘼𝙑𝙄𝙊𝙐𝙍𝘼𝙇 𝙀𝘾𝙊𝙉𝙊𝙈𝙄𝘾𝙎 𝘼𝙉𝘿 𝙁𝙄𝙉𝘼𝙉𝘾𝙀: 𝙒𝙃𝙔 𝙄𝙉𝙑𝙀𝙎𝙏𝙊𝙍𝙎 𝘾𝙊𝙎𝙏 𝙏𝙃𝙀𝙈𝙎𝙀𝙇𝙑𝙀𝙎 𝙈𝙊𝙉𝙀𝙔.⭐️ ✅ Due to the volatility over last month, many investors are selling off. 💡I find it as a great opportunity to talk once again about Behavioural Finance, one of the most important (and my favorites) fields in Investments and Finance. 📌Peter Lynch was one of the greatest investors in history. He managed the Fidelity Magellan Fund for nearly 30 years obtaining an incredible annual return of 29%. ⚠️ Yet, according to data provided by Fidelity, the average investor in the fund lost money over that period. 𝙃𝙤𝙬 𝙞𝙨 𝙩𝙝𝙖𝙩 𝙥𝙤𝙨𝙨𝙞𝙗𝙡𝙚? 🧠 The explanation relies on the behavior of the investors. Even though the fund achieved outstanding returns over the years, investors took poor investment decisions that made them lose money: they joined the fund after the best performing years, buying very expensive and left the following year, when the performance was not that great as the previous, locking up loses. ✅ Had they stayed in the fund for a longer period (focusing on the long term), they would have obtained the nearly 30% yearly return the fund got. 𝙄𝙨 𝙞𝙩 𝙖 𝙜𝙤𝙤𝙙 𝙞𝙙𝙚𝙖 𝙩𝙤 𝙩𝙧𝙮 𝙩𝙤 𝙩𝙞𝙢𝙚 𝙩𝙝𝙚 𝙢𝙖𝙧𝙠𝙚𝙩? 💁🏻‍♂️ Market timing is defined as trying to anticipate market movements to buy at the lowest point and sell at the highest, maximizing returns. ⚠️As good as it might sound, investors who try to time the market most times end up losing money or underperforming the market, as has been seen in the Fidelity Fund example. ❓Why? 📌 𝙀𝙖𝙨𝙮: 𝙩𝙞𝙢𝙞𝙣𝙜 𝙩𝙝𝙚 𝙢𝙖𝙧𝙠𝙚𝙩 𝙞𝙨 𝙣𝙤𝙩 𝙥𝙤𝙨𝙨𝙞𝙗𝙡𝙚, 𝙖𝙩 𝙡𝙚𝙖𝙨𝙩 𝙣𝙤𝙩 𝙘𝙤𝙣𝙨𝙞𝙨𝙩𝙚𝙣𝙩𝙡𝙮 𝙞𝙣 𝙩𝙝𝙚 𝙡𝙤𝙣𝙜 𝙩𝙚𝙧𝙢. 🔙 The well-known investment research firm Morningstar measured the cost of market timing in his report “Fundamental for Investors (2018)”. ⭐️ It concluded that an investor that had missed the best 10 days of the market between 1997 and 2017 would have underperformed the market by half. 📌 According to Morningstar, 𝙩𝙤 𝙗𝙚𝙖𝙩 𝙩𝙝𝙚 𝙎&𝙋𝟱𝟬𝟬 𝙞𝙣𝙙𝙚𝙭, 𝙖𝙣 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧 𝙬𝙤𝙪𝙡𝙙 𝙣𝙚𝙚𝙙 𝙩𝙤 𝙢𝙖𝙠𝙚 𝙩𝙝𝙚 𝙧𝙞𝙜𝙝𝙩 𝙘𝙖𝙡𝙡 𝙤𝙣 𝙩𝙝𝙚 𝙢𝙖𝙧𝙠𝙚𝙩’𝙨 𝙙𝙞𝙧𝙚𝙘𝙩𝙞𝙤𝙣 𝙩𝙬𝙤 𝙤𝙪𝙩 𝙤𝙛 𝙩𝙝𝙧𝙚𝙚 𝙩𝙞𝙢𝙚𝙨! Crazy, isn’t it? ❓If the numbers and statistics are so clear, why do investors keep taking wrong investment decisions? 🧠 The answer relies on the Behavioural Finance field and is explained by the so-called heuristics and other popular concepts like: ✅Herd Behavior: people tend to replicate the movements and investment decisions of the majority, similar to a herd. ✅Emotional gaps: some irrational choices are caused by extreme emotions or feelings: anxiety, anger, excitement… ✅Anchoring: people tend to base their decisions on reference points that are arbitrarily chosen. ✅Self - attribution or overconfidence in one’s own knowledge or skill. The concepts lead to the so-called 𝙗𝙞𝙖𝙨𝙚𝙨: 1️⃣𝘾𝙤𝙣𝙛𝙞𝙧𝙢𝙖𝙩𝙞𝙤𝙣 𝙗𝙞𝙖𝙨: investors tend to look up and take as right information that confirms what they believe rather than information to contrast it. 2️⃣𝙇𝙤𝙨𝙨 𝘼𝙫𝙚𝙧𝙨𝙞𝙤𝙣: investors place more weight on the concern of losses than the pleasure from market gains. It is estimated that the pain of losing $1 is equivalent to the pleasure of a $2 - $2.5 gain. 3️⃣𝙁𝙖𝙢𝙞𝙡𝙞𝙖𝙧𝙞𝙩𝙮 𝘽𝙞𝙖𝙨: investors tend to invest in what they know. For example, domestic companies rather than international stocks. 4️⃣ 𝙀𝙭𝙥𝙚𝙧𝙞𝙚𝙣𝙩𝙞𝙖𝙡 𝘽𝙞𝙖𝙨: Investors tend to think that events that have occurred in the past are likely to happen again. ❓ What can investors do to avoid biases and bad investment decisions caused by behavior? 1️⃣𝘿𝙤 𝙣𝙤𝙩 𝙡𝙞𝙨𝙩𝙚𝙣 𝙩𝙤 𝙩𝙝𝙚 𝙣𝙤𝙞𝙨𝙚: News, other investors, celebrities… Loads and loads of new information are released each day and will likely cause you to make wrong investment decisions. Avoid the noise and only look up quality and objective information. Do not make decisions right after reading a piece of news, take your time to think and go over it. 2️⃣𝙃𝙖𝙫𝙚 𝙖 𝙥𝙡𝙖𝙣 𝙖𝙣𝙙 𝙨𝙩𝙞𝙘𝙠 𝙩𝙤 𝙞𝙩: you need to have a CLEAR INVESTMENT STRATEGY. This is a very important point because when hard times come you need to remind yourself what is your strategy, why is a good strategy, and stick to it. 📌In the QualityDividendPortfolio we have a CLEAR STRATEGY and we stick to the plan in good and bad times. Running out when there is a correction is POOR INVESTMENT DECISION 𝙋𝙡𝙚𝙖𝙨𝙚, 𝙗𝙚 𝙥𝙖𝙩𝙞𝙚𝙣𝙩, 𝙛𝙤𝙘𝙪𝙨 𝙤𝙣 𝙩𝙝𝙚 𝙡𝙤𝙣𝙜 𝙩𝙚𝙧𝙢, 𝙨𝙩𝙞𝙘𝙠 𝙩𝙤 𝙩𝙝𝙚 𝙨𝙩𝙧𝙖𝙩𝙚𝙜𝙮. Remember what Warren Buffet said: “The Stock Market is a device for transferring money from the impatient to the patient” $SPX500 (SPX500 Index (Non Expiry)) $EUSTX50 (EUSTX50 Index (Non Expiry)) $VTI (Vanguard Total Stock Market ETF) $UVXY (ProShares Ultra VIX Short-Term Futures ETF)

4 Mentioned

SPX500

EUSTX50

VTI

Vanguard Total Stock Market ETF

UVXY

ProShares Ultra VIX Short-Term Futures ETF

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