Feb
09
The Psychology of Investing: How We Cope With Risk
Researchers have found that investors have a tendency to psychologically exaggerate declines in the performance of an investment and to minimize gains. It's a phenomenon with a complex sounding name -- "myopic loss aversion" -- but also one that makes a simple point: Psychology plays a role in our investment decisions. Understanding that role, the subject of this second installment of a three-part series on investment risk, may help you stay on course toward your long-term financial objectives. Word Play Individuals subconsciously "frame" expectations based upon how the information is presented to them. For instance, would you prefer to invest in a security that has a 40% chance of yielding negative returns or one that has a 60% chance...
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