An excellent analysis into investors’ behaviours. I’m certainly one who is always filled with regrets when I have “missed” opportunities, to buy or sell stocks when the prices are good, quite often with hindsight 🙂 And I’m not willing to cut my losses, even though it makes sense to cut them and then buy back when the prices are lower. I guess it is also to do with not knowing that the stock prices are going to be much lower. But having said that I have never cut any loss with the strategy to buy back at a lower price. Instead I always prefer to average out the positions of my stocks. This strategy can work too, provided that I have more money to pour in. But not so much if I’ve already gone all out. And I certainly agree on the Prospect Theory, as I’m one of many who is willing to take more risks when I’m losing money, although not quite to an insane level which I’ve seen some people do. Anyway if one is not comfortable about losing money, even if it is just paper loss at the time, it is best to only invest money you can afford to lose. Otherwise, be prepared for any potential anxiety over your portfolio, particularly at this kind of uncertain economic climate, when all is not going according to plans.
The stock market took another tumble despite the latest bank rescue plan announced by the UK government, and a coordinated 0.5% interest rate cut across the world, involving Americas, UK and European Union. Never have I seen these countries working together at the same time. Just goes on to tell you the scale of the financial problem we are now facing. Property bubble, subprime problem, inflation, bank liquidity problem, now leading to increasing unemployment. The economy is definitely heading for the worse. Has it turned the corner? Apparently not yet, as goverments are still coming up with rescue packages to try and help various sectors – property, bank, insurer, manufacturing etc.Few days ago I thought the banking sector might have already reached the bottom. We started moving into the stock market, acquiring bank shares. That was before the US finally approved the $700 billion rescue plan to buy up toxic debts. Yet that did little to stabilise the market. Today’s announcement from the UK to part-nationalise banks I feel is welcoming, as it should help strengthen the banks, bring some sanity back to how bank should be remunerated, and get the bank to operate more sensibly. Unfortunately, investors are still uncertain and the stock market continue to slide.To be honest, I still feel the banking shares are unbelievably low. If people have cash to spare, it is at this kind of turmoil that you start investing in the stock market, to maximise the return on the meagre sum of money we have got. Often people will question about the timing. Yes, we don’t know how low the market can go, and people always want to catch the absolute bottom. But can we always get the “best” deal?