Montgomery: Irrational selling creates opportunity

Each year Dalbar, a US based research firm, conducts their Quantitative Analysis of Investor Behaviour. The study looks at how investor decisions to switch in and out of mutual funds impacts the returns that they achieve. Intuitively investors know the principles of buying low and selling high, however, Dalbar’s research confirms that most investors fail to execute on this basic premise - consistently underperforming the funds they invest. This is partly attributable to investors attempts to 'time the market', a behaviour influenced by 9 cognitive biases that commonly results in underperformance. So if investor behaviour is programmed to result in poor outcomes, how can you combat these biases? This is the topic of a new White Paper authored by Roger Montgomery to be released on Livewire in the coming days. In the short video below Montgomery explains the discipline his team employs to combat this behaviour. He also highlights three stocks where he believes irrational selling has created opportunity. Watch the video below: