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Opportunity Cost: Emotions

August 30, 2012

Emotions May Be Keeping your Clients in Cash, Putting their Long-Term Goals at Risk.

-Matt Lloyd, chief investment strategist, Advisors Asset Management

Emotions May Be Keeping your Clients in Cash, Putting their Long-Term Goals at Risk.


Taking a snapshot of headlines and it is not hard to discern where investors' predispositions lay. 

"World's Economic Problems Face Monetary Leaders" Owen Ullman, AP

"Should the U.S. Return to the Gold Standard?" Lewis E. Lehrman & Henry S. Reuss, Christian Science Monitor

"Is Federal Reserve to Blame for Economic Problems?" John Cunniff, AP

"Economic Troubles Mount in Japan" Ralph de Toledano, Sunday Union

"Europe A Continent Facing Uncertain Future" AP / Boca Raton News

To be fair, investors are barraged with headlines akin to a lawyer leading a witness, but the base psyche of the investor is already conditioned to be more wary during certain times as compared to others. We have discussed at length the Recency Bias and its strong influence on sentiment, consumption and ultimately asset allocations. However, understanding that subtle subconscious recognition also has an impact on decision making. A study done by Hershleifer and Shumway in 2003 found that sunshine in the morning had a higher likelihood of higher equity returns as measured over 26 various international equity exchanges. Somehow it doesn't seem hard to imagine a new subsidy for skylights from the U.S. government for those who designate day trading as their vocation.

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