Sunday, 22 February 2015

Investment Decisions and Emotions

Here's an excellent reply from Pater Tenebrarum to an assertion that "Most investors are simply not that frivolous with their money to buy investments on a whim",
On the contrary, the vast bulk of investment decisions are based on emotions. The "data" that are used to justify the decisions are merely rationalizations in most cases. This is the reason why the prices of financial assets very often get strongly out of line with what would be widely considered their "fundamental" values. It makes financial markets remarkably inefficient and creates both great buying and selling opportunities. If not for the fact that emotions are a main driver of asset prices, it would be very difficult to make money in the markets.