Common Investor Mistakes

INVESTOR PSYCHOLOGY Overconfidence WVESTMENT RETUN BEHAVIOR 6AP 'Be fearful when others are greedy and greedy only when others are fearful -Warren Buffett Investors believe that their decisions are superior to those of others and, as a result, they are more inclined to make risky investments INVESTOL BEVAN Disposition effect Investors sell their 'winners' too Loss aversion Investors may feel losses more keenly than gains and may therefore sell loss- making investments more quickly Market Peak (Risk) early, but hold on to 'losers' for too long Euphoria Anxiety Denial Thrill Investment markets are driven by fear and greed Excitement Fear Desperation Optimism Relief Hope Depression Optimism Panic Capitulation Following the herd and trusting blindly in someone equally uninformed is very dangerous. All investments should be funneled through one investment The market can be a roller coaster of emotions if you fail to understand your risk profile. The level of volatility should not bring Despondency Market Trough (Opportunity) surprises process "The line separating investment and speculation becomes blurred when most market participants have recently enjoyed triumphs - Warren Buffett 'Recency' put more emphasis on the recent past when making decisions about the future, expecting that the future is more likely to look like this. Also known as "anchoring" Investors tend Hold on to your investments to reduce your risk. Holding your investments for over 20 years should substantially reduce the chances of a negative return. Even if you have a bad run it's not a loss until you sell. Look past your psychological connection with your investment and remain logical. In the long run it will pay off. Range of equity and bond total returns Monthly total returns, 1950 – 2013 Large cap equity Bonds 61% 50/50 Portfolio 48% 49% 30% 25 24% 24% 21% 17% 17% 18% 15% 13% 4% 4% 1% 1% -3% -1% 0% 18% -24% -2 -51 1 yr rolling 5 уг гolling 10 yr rolling 20 yr rolling Time (years) f in AES INKRNAIIONAI Percentage