Most people will be familiar with the seduction of the January sales: buying something because it appeals in the shop, rather than considering whether it will blend in at home. Investment management brings similar problems. Buying is often too easy: investors do their research, find an opportunity they like, and buy it at the touch of button, without considering whether it is a good match for the rest of their portfolio.
The most straightforward reason to buy is that an investor believes they have found a good investment where the price will rise. Each investor will have their own idiosyncratic reasons for believing that an investment is a good one, but more successful investors won’t buy everything they like, remaining alert to their own behavioural traits, sensitive to the price they pay and how it will fit in with their other holdings.
Tom Wildgoose, co-manager of the Nomura Global High Conviction Fund (IE00BD4DXN99) says: “Investors need to recognise that they are human and human decision-making is affected by bias. Deliberately trying to reduce bias and stay rational should be at the heart of any decision-making process.” This is not readily achieved. Investors are prone to taking shortcuts and, like that orange shirt that looks so good on the hanger, buying without due care and attention.