Oftentimes, investors find themselves racking up losses — when investing decisions are dictated by emotions. They are carried away by euphoric buying in a rising market and succumb to fear-driven panic selling.
(Apr 24): Trading on equity markets seems to have taken on a manic tone, of both euphoria and fear. We saw the Dow Jones Industrial Average falling 38% from all-time highs and then, almost in the same breath, rebounding as much as 33%. The steepness (speed and magnitude) of both the fall and subsequent recovery was unprecedented, defying all previous market cycles on record.
No doubt, the world we live in has changed significantly over the past decade, driven by rapid technological advancements and high-speed internet connections. Information is disseminated almost instantaneously and so, it seems, is investor reaction. The latter is further exaggerated by algorithm trading and the rise of passive investment instruments, which result in indiscriminate selling and buying.
