Talking market volatility and investor behaviour

PSG Wealth, an independent financial services company, recently held a presentation at the Johannesburg Stock Exchange (JSE) regarding the link between market volatility and investor behaviour.

Presenting at the event, head of client education at PSG Wealth, Shaun van den Berg, spoke about how investors can be emotional and irrational in times of market volatility and discussed typical bad investor behaviour as well as good habits.

“No one wants to lose money, but sometimes we need to accept that getting out of an investment is better than staying in it,” he said.

“A reluctance to accept a loss can be costly. If your investment is down 20 percent, you may be tempted to hang on for as long as possible to try and recoup what you have lost, but what if that day does not come?”

According to Van den Berg, many investors use a ‘hope strategy’ and have the illusion of control over uncontrollable events. “The best thing to do with a big loss is to accept it, learn from it and move on,” he said.

Investors are often drawn to the noise in the media as to what other investors are doing and because of fear or greed, poor decisions are made.

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Investor returns can often differ from investment returns. “What this means is that some investors panic but hope for the best, while others may disinvest too early. They might move their money around but could ultimately end up losing investment value when compared to the actual stocks or unit trusts they were invested in. Or it can be good timing and they end up making a better gain invested elsewhere,” he added.

It is very difficult for investors to constantly keep an eye on what is happening and to make rational decisions if their investment value fluctuates. “It can be an emotional roller-coaster and making the wrong decision at the wrong time could really set you back.”

He stressed the importance of having a financial adviser who is able to guide you through these tough decisions. “Your adviser is not emotional like you and is equipped to make sensible investment decisions, ultimately helping you to stay on track with your investment plan.”

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