Video by Fisher Investments via YouTube
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher debunks the common myth that investors should “trust their gut.” According to Ken, trusting your instincts can be dangerous for long-term investors. As Ken explains, the temptation to make investment decisions based on a “gut instinct” is driven by the natural human tendency to seek what’s comfortable—or less risky—at any given time.
Ken notes how studies in behavioral psychology show that humans feel the pain of loss about 2.5x more than the joy from a comparable gain, which can drive us to make decisions based on emotion. As Ken explains, these emotions and “comfort-seeking” tendencies can cause investors to make mistakes—like selling during negative volatility and missing critical market recovery periods—which can have costly long-term implications. Ken encourages investors to write down their gut instincts over a long period of time to see how many times they were correct. By doing so, he says how investors can see how these trusting these instincts may hinder their returns over time.
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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.