Investment decision making
Investment Decision Making
Since many of you like Behavioral Finance research to help you improve your decision making process, please find attached some research papers on:
- Asset Allocation
- Information Overload
- The Effect of Myopia and Loss Aversion on Risk Taking
- Making Intelligent Decisions
We have also attached a summary: BFM_Newsletter_05_2011.pdf.
We can summarize some of the practices that an investor should try to follow, such as:
- Continuously striving to become more educated about investing.
- Understanding personal objectives related to investment.
- Determining one’s own risk appetite.
- Exploring all the practically possible and logically sound alternatives related to investments.
- Evaluating investment options carefully and comprehensively (without skipping the fine print).
We also recommend some things that an investor should try not to engage in. For example:
- Evaluating decisions too frequently.
- Comparing outcomes with past performance or outcomes of other people’s decisions without an actual understanding of the real factors behind the outcome.
- Becoming sensitive to short term devaluation of investments.
Schwartz observes an important attribute associated with decision making. We quote Schwartz:
“We seem to do our best thinking when we’re feeling good. Complex decisions, involving multiple options… demand our best thinking. Yet those very decisions seem to induce in us emotional reactions that impair our ability to do just the kind of thinking that is necessary.” We would like our investors to focus on the first part. We need to feel good when we make important decisions. Not something easily controllable but it is always worth the attempt.
We conclude with a hope that our recommendations would assist you to gain a more pragmatic and cognizant approach to investing.
Many of you know of my involvement with a youth organization called South Shore Drill Team, and I am sharing an article about the group that the New York Times ran on April 24. For the past two years, I have been on the Board and chaired the Finance Committee. We have been working since November, 2009 on "Strengthening Financial Management," a project funded by the Wallace Foundation of New York. Like most nonprofits and for-profits, too, South Shore Drill Team is struggling in the current economy, but it is continuing to serve young people on Chicago's southside, and the attached NYT article makes this abundantly clear. (click here to get more details on New York Times)
On June 4th, South Shore Drill Team will host a VIP Night Reception and Performance from 6-9 pm at Illinois Institute of Technology's Hermann Hall.
The VIP tickets are only $75 (reception before the show), and I would love for you to join us for this special evening. You may also buy regular tickets for $20 (show only).
Let me know if you would like to join!
CHECK OUT THE VIDEO : http://www.youtube.com/watch?v=-lHjByQz0TE
In case you were planning to refinance or buy a house or condo, here is an update on mortgage interest rates:
-The Jumbo 30 yr fixed is 4.625%!
-The high 3%s for the 10 yr fixed to the mid 4%s for the 30 yr fixed
-The mid 2%s for the 3 year ARM to the low 4%s for the 10 year ARM.
-The FHA 30 year fixed is down to 4.25%
#The rates quoted above are for purchase loans on May 9th 2011; refinance rates may be slightly higher.
This newsletter was first published in May of 2011