Monday, March 24, 2008

Behavioral Investing

Snake Bite Effect - When people experience a loss, they feel that they should take less risk with the money they have left because they feel they will continue to be unlucky. This may not be true, if the investment fundamentals and growth potential has not changed.

Behavioral Investing.


I must admit I was bitten in the financial markets recently [Marekets Are Killing Me!]. I noticed when investing in individual stocks, there is the tendency to constantly check on them and how well or bad they are doing. So in volatile markets, like the one experienced in the US recently, this means trading those stocks prematurely with adverse consequences -like I experienced.

So I have been thinking about how to invest for the long term without going directly into individual stock to avoid the constant urge to follow the markets. I did some research on Exchange Traded Funds (ETFs). It is a great way to get exposure to the market or sector (say financial) by investing in a single ETF that gives you diversification within the market or sector (it is comprised of a number of stocks in the financial sector) as well as liquidity (you can trade ETFs just like stocks). This makes it easier to focus on long term investing rather than suffer from volatile markets.


Weld El-ma6aba said...

I 2nd that.. etfs are the way to go now.. and if you have a big risk appetite you can always invest in leveraged ETFs such as QLD which is 200% the daily performance of the NASDAQ-100 (or the QQQQ)

or even better go buy some leaps those leveraged ETFs. (don't hold me liable,.. invest at your own risk :P)

Anonymous said...

Im a looooooooooong term investor..
Buy and forget :P