Investor Behavioural Bias

Issue 82

I recently read an article describing the five biases investors display, with 98% of us displaying at least one of the five. So, let's run through them one at a time.


What it is: Fixating on a specific reference point, like the price paid for an investment or market index level and basing decisions around that one number.

How it affects investors:

Can cause investors to overvalue, or undervalue, asset prices or market performance based on an arbitrary number drawn from experience.

“Loss Aversion”

What it is: Feeling losses much more intensely than feeling the reward from an equivalent gain.

How it affects investors:

By prioritising the avoidance of short-term losses over long-term gains, investors may put the success of their long-term goals in jeopardy.


What it is: Placing too much emphasis on experiences that are freshest in one’s memory — even if they’re not the most relevant or reliable.

How it affects investors: Believing that short-term trends will continue may lead investors to ignore new information and be slow to react to changes in investment markets. “Familiarity”

What it is: Preferring to invest in what is familiar. – especially from domestic markets. For instance, the average Canadian has 92% of their wealth in Canada.*

How it affects investors: Leads to concentrated portfolios that hold only the most familiar investments – especially from domestic markets. This can increase portfolio risk and lead to a bumpier investment experience.


What it is: Seeking, or accepting, only information that supports what one already believes.

How it affects investors: By ignoring information that doesn’t support one’s decisions, an investor can form unrealistic expectations that can lead to portfolio concentration and increased risk.

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