In an environment where the media bundles business news with sports, we are conditioned to hearing stock market price updates along with the scores of games.
When a sports match is very exciting, we pay attention.
Likewise, when stock markets are volatile, we are captivated.
However, it is vital to maintain a balanced perspective so that we don’t treat investing like a game.
This article by Liz Ann Sonders, Managing Director and Chief Investment Strategist at Charles Schwab & Co. Inc., discusses how investor psychology can lead to extreme price volatility by examining the factors that led up to the strong surge and correction in precious metals.
Here are some key investor takeaways that we want to highlight:
- Crowded trades carry hidden risk
- Investor psychology can overlook fundamentals
- Risk management beats price prediction
Our view is that risk management is far more valuable than making price predictions. That’s why we practice disciplined portfolio management that allows professionals to make key asset allocation decisions within limits that are suitable for individual investors.
