Emotions & Investing

May 2022

 

How we perceive crises can influence how we act and ultimately affect our invesment results

 

 

 

 

 

April 2022
 

The boldest and most believable predictions are often biased and incorrect.

 

The Challenge of Selling

 

Selling a security is something that investors ponder from time to time. Whether that security is an individual stock, a mutual fund, or an index fund, investors are left with the question of what to do with the proceeds.

No matter the reason for selling, it is important we have a well-thought plan for what we will do with the proceeds...before we pull the trigger.

Remaining in Cash

The default for selling securities is to remain in cash. Whether the markets are high or low, we may justify sitting in cash until the “uncertainty and tough times pass.” This logic relies on a significant (and incorrect) assumption – that there will be an “all-clear signal”, that it is a good time to invest. That of course is never the case.

Sitting in cash may seem to be a comfortable and safe move, but it is fraught with uncertainties and long-term danger. Perhaps most importantly, “When do we get back in” ? What if the market keeps moving higher? At what point do we realize that the train has left the station and we aren’t on board? 

Investing in Another Security

We may sell a security with plans to invest in a different one. Sometimes we are influenced to buy a security that has been performing better than what we own. The question we must ask ourselves is: “What evidence do I have that the new security will perform better than the existing one?”

This is an important question to reflect and discuss with us. A lot of money has been lost because investors sold and bought at the wrong time. This happens with both novice and professional investors, including institutional managers. It is difficult to remove emotion from decision.

In a study spanning 24 years, researchers analyzed the trading results of institutional money managers. They found that the stocks they sold subsequently outperformed the stocks they bought at a cost of over $170 billion. The abstract summarized, “Plan sponsors could have saved hundreds of billions of dollars in assets had they simply stayed the course.”1

Thoughtful Selling

Of course, there are occasions when selling a security makes sense. But that should only be after purposeful thought and a plan of “what’s next” is created. It is so easy to sell, and our emotions can sometimes get the best of us. But that why I am here. We are here to help ensure your decisions are thoughtful and in line with your plan.

 

Scott Stewart, John Neumann, Christopher Knittel & Jeffrey Heisler, “Absence of Value: An Analysis of Investment Allocation Decisions by Institutional Plan Sponsors”, Financial Analysts Journal 65, no. 6 (2009). ©2022 The Behavioral Finance Network

 

Presented by David M Cyrs B.A., M.S., AIF® is a CERTIFIED FINANCIAL PLANNER™ PRACTITIONER , and Certified Retirement Counselor®, dual licensed as a  General Securities Representative and Investment Advisor Representative. He is the owner of CYRS Wealth Advisors an Illinois specialty Financial Planning and Wealth Management firm, which specializes in Retirement, Investment Wealth Management, and Estate Planning, with a Holistic Wealth Management focus.

This document contains confidential, privileged information and ideas intended solely for the review of the intended audience/client/prospect of CYRS Wealth Advisors LLC, 1111 South Alpine, suite 701, Rockford, Illinois 61108. Ph 815-316-1111.Investments and Advisory Services offered through Commonwealth Financial Network®, Member SIPC and FINRA, a Registered Investment Adviser.  Fixed Insurance products and services offered through CYRS Wealth Advisors, LLC or CES Insurance Agency.©2021 The Behavioral Finance Network. Used with permission.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.