The dangers of short-termism

Short-termism is one of the most serious behavioural biases investors must overcome to produce market-beating returns. Our natural preference for short-term rewards over delayed gains has long been noted by psychologists as a feature of the human condition that extends to many aspects of our behaviour. Investing dials into deeply rooted cognitive biases and automatic responses in our brains thanks to the involvement of money, the presence of which has been shown to encourage emotional decision-making. How should investors go about beating the market? One approach is simply to take a longer view than the market. Given the greater short-term focus of investors and sell-side analysts, the equity market has become relatively effective at pricing near-term earnings expectations where there tends to be greater certainty. However, the market is less effective at evaluating longer-term earnings, showing a relative neglect for the longer-term value of companies exposed to strong structural growth. This represents an opportunity for investors who can identify structural-growth winners. Read the full story: (VIEW LINK)