‘The investor’s chief problem—and even his worst enemy—is likely to be himself.’ – Benjamin Graham, economist and professional investor
Considering that we humans frequently look after our own self-interest as a matter of priority, it’s amazing how often we seem to have it in for ourselves!
As Benjamin Graham once observed, investing would be a whole lot simpler if investors themselves weren’t so fond of making bad choices! For those who know us at Clever, you’ll be aware that this is exactly what we try to help you avoid. Using artificial intelligence, in-depth research and big data, our system takes the emotion out of investing (where it belongs) and just helps you and your clients to make good choices.
The reasoning for this is simple: when emotion is involved, bad decisions are made. And that holds true for more than just investments too (though there are plenty of examples in that area!) as our short list demonstrates…
The US stock market
The Great Depression of 1929 to 1939 in the US was kicked off, in part, by a fit of panic selling in the US markets. Having gone up nearly 400% from 1926, the markets corrected and declined in 1929. Investors, nervous of losing their gains, began to panic sell, wiping vast values from stocks. Whilst there were plenty of economic reasons behind the depression, markets did recover and investors may have avoided some of their losses had they only held on to their investments.
Cleopatra’s chance at overthrowing Rome
Ah, young love! Or not so young in the case of Julius Caesar, who was 52 when he took 21 year old Cleopatra as his mistress. At this point, the formative Roman Empire (really only around three years old), though powerful, could still have been there for a level of taking. Instead, Cleopatra’s first lover and then her second (Anthony) were killed and committed suicide, leading to the Queen of Egypt following suit. Egypt was promptly taken over by the Romans and re-christened Aegyptus. Had Cleopatra not been so focused on her (eventually doomed) loves then could the entire future of the Western hemisphere have been different? We’ll never know!
Hull’s Premier League status (thanks to Phil Brown’s on-pitch team talk) and…
Boxing Day 2008. Pride dented by his team’s first half performance (they were 4-0 down away to Manchester City), manager Phil Brown marched his players onto the pitch in front of their own fans and, in language we won’t repeat here, told them exactly what he thought of their performance. The result? Well, Hull did stay up that year, but it can easily be seen as the beginning of the end for club and manager. Hull lost the game 5-1, Brown was sacked the next season and the club relegated the same year. Had he reacted more rationally (you can see where we’re going here…) then perhaps the outcome would have been different.
…football clubs in general!
Many a football fan has a desire to see their team do well, but those that have the funds to try to effect the change themselves seldom seem to come off as winners. Indeed, many people told Simon Jordan that his boyhood club, Crystal Palace were a bad investment when he bought them in 2000 for £10 million. 10 years later the club was in administration and Jordan’s personal fortune had all but been wiped out.
IPO launches
The current ‘hot topic’ in investments, Initial Public Offerings (IPO) on newly floated companies are all the rage as far as some consumers are concerned. The chance to invest in a brand we feel positively towards is apparently hard to pass up, but the numbers have little to do with brand loyalty. For every Royal Mail there’s a Twitter (currently trading at around $18, having launched at $40).
David Nalbandian’s championship chances
Another sporting mishap in an environment where emotions can run high (sounds just like investing), David Nalbandian was on his way to a men’s Championship win at Queen’s in 2012 when, in anger, he kicked an advertising hoarding, which hit a line judge. The Argentine was disqualified as a result. Out!
The first ISA millionaire’s ISA (nearly)
Credited as being the first ISA millionaire, Lord Lee admitted to making a few mistakes along the way, including a time when nervousness caused him to sell his shares in the shipbroker Clarksons early. Having bought at 149p, Lee sold for between 488p and £11. A tidy profit, yes, but, at time of writing in 2013, Lee was gazing wistfully at the Clarksons’ share price of around £20 and wondering what might have been!
If you think there’s currently too much nervousness, panic or yes, even love, creeping into how you or your clients see investments, then we can help! You can get in touch here.
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