Protecting your portfolio from poor thinking

Buy Hold Sell

It is a fact of human nature that we all suffer from cognitive biases to some extent; if you think you’re the exception to this rule, you could be suffering from overconfidence bias. “We are, as human beings, wired in a way that is quite detrimental to good investing,” says Romano Sala Tenna from Katana Asset Management. One of the factors separating great investors from average investors is their ability to recognise and control their emotions and biases. “I actually think you can make money out of the stock market if you understand it really well, without ever looking at a financial statement,” says Steve Johnson from Forager Funds. In this thematic discussion, they identify some of the most significant and dangerous biases for investors and discuss how to go about protecting yourself against the worst effects.


Buy Hold Sell

Buy Hold Sell is a weekly video series exclusively available through Livewire. In each episode two fund managers are asked for their views 'Buy, Hold or Sell' on five ASX listed companies. The format is meant to be short, sharp, insightful and...

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Medium screen shot 2016 01 12 at 2.25.34 pm

James Marlay

Great little video, very useful.

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Phillip Woodhill

Very true and applicable to all forms of trading. Recognition, control and stay with your plan is the best way to overcome this bad habit. Mr Market wins, traders can only go along for the ride, speculators eventually lose their bets. Cut losses early, ride profits to your target. You will never go broke this way.

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Phillip Woodhill

Great advice, thanks.

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Michael Hill

Re cutting losses. What works for me is to look at the portfolio value as a whole, not at the individual loss being taken to account. After selling the dog stock your portfolio value remains the same. Plus you have cash to reinvest.

Medium screen shot 2016 01 12 at 2.25.34 pm

James Marlay

I like that suggestion Michael. I tend to find I am often fighting the temptation to tweak things that aren't necessarily broken or wrong. Usually if I force myself to look at the position on a 3 - 5 year view the urge to change something is overcome.

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