Saturday, November 22, 2014
The Folklore of Finance : How Beliefs and behaviors Sabotage Success in the Investment Management Industry
In “The folklore of finance: Beliefs that contribute to investors’ failure” Paul Sullivan discusses a new study The Folklore of Finance : How Beliefs and behaviors Sabotage Success in the Investment Management Industry indicating that “the way individual and professional investors made investment decisions was so skewed that achieving both high returns and long-term objectives was nearly impossible”. What the study found is that due to “’the folklore of finance’…people were overconfident in their investing ability, unable to focus on their stated long-term goals when distracted by short-term noise in the markets, and had come to distrust their advisers and lose interest in receiving professional investing help.” The study also found that the prognosis is poor for changes to investor current behavior exemplified by: “futile quest for alpha”, short-term orientation instead of focus on “setting a financial goal and meeting it”. If your advisor is not calling you regularly to discuss how you are doing against your long term goals, perhaps you should be looking for a new advisor. Thanks to Peter benedek at
http://retirementaction.com/2014/11/21/hot-off-the-web-november-24-2014/ The Full Study is available at http://www.statestreet.com/centerforappliedresearch/doc/folklore/paper.pdf In effect, the financial services industry faces a crisis of faith that may lead to more Do it Yourselfers that can be counter to investors' long term interests.The financial services industry needs to develop a new Folklore of Finance that reinforces the values to achieve true success beyond the profitability of industry participants.