has been well documented by the likes of Daniel Kahneman and Richard Thaler. “Prospect theory and aversion to losses” emphasise that investors perceive asset gains and losses differently. Investors place more weight on perceived gains than losses, but losses cause a greater emotional impact – and with that comes a desire to act to alleviate loss.
Extreme uncertainty has taken hold with war in Europe, sharply higher food and energy prices and a concerted effort towards a path to decarbonisation. Caution and patience are needed. The rational investor, on the other hand, will stay calm and even become excited by the falls in share prices and see opportunities rather than losses. That goes against Prospect Theory, but it will help investors hold on to their wealth.Given the current market conditions, investors need to focus on fundamentally sound assets to strengthen their portfolios.
Key words taken from this article, 'quality companies'
And don't forget the wisest words I've ever been taught, it's only a looser if you sell it!
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